On Wednesday, Wells Fargo (NYSE:WFC) maintained an Equal Weight rating on Pinnacle West Capital (NYSE:PNW) while increasing the price target from $77.00 to $80.00 for the shares. The adjustment reflects optimism about regulatory developments aimed at reducing lag and smoothing earnings trajectories.
The focal point of recent Midwest virtual meetings was the Arizona regulatory lag docket, which overshadowed discussions about data centers.
Management at Pinnacle West Capital has expressed a positive outlook regarding the direction of regulation that could potentially lessen the impact of regulatory lag on the company's financial performance.
Wells Fargo's revised price target of $80 per share is based on a 14.5 to 15 times multiple of the firm's estimated 2026 earnings, plus a dividend discount model (DDM) approach. This new target takes into account the higher peer group multiples that have been observed.
The price target increase suggests Wells Fargo's recognition of Pinnacle West's potential to align more closely with peer valuations, assuming the company's management can successfully navigate the regulatory environment.
Pinnacle West Capital's shares are now anticipated to reach the new target as the market considers the implications of the anticipated regulatory changes and the company's efforts to stabilize its earnings.
The Equal Weight rating indicates that Wells Fargo views the stock as fairly valued at its current price, factoring in the potential benefits from the regulatory adjustments.
In other recent news, Pinnacle West Capital Corp (NYSE:PNW). has announced its intention to offer $450 million in convertible senior notes due in 2027, with the proceeds earmarked for general corporate purposes.
This includes potential debt repayment, working capital, and investments in its subsidiary, Arizona Public Service Company. The company will also provide an option for initial purchasers to buy up to an additional $67.5 million of these notes within a 13-day period starting from the issue date.
In the same vein, the company has reported a positive shift in its Q1 2024 earnings, posting $0.15 per share, a significant improvement from the loss of $0.03 per share in the same quarter of the previous year.
This performance surpassed both BofA Securities and consensus estimates, prompting BofA Securities to revise its 2024 earnings per share estimate for Pinnacle West upward to $4.84 from $4.82.
Furthermore, the company confirmed its 2024 EPS guidance range of $4.60 to $4.80 per share and reiterated its commitment to a long-term EPS growth target of 5%-7%. This, coupled with its capital investment plan, signals a stable growth trajectory for Pinnacle West.
Lastly, Pinnacle West has been focusing on operational preparedness for the upcoming summer and a comprehensive fire mitigation strategy.
The company is also exploring debt markets and low-cost financing options, including the Department of Energy lending program. These are among the recent developments for Pinnacle West Capital Corp.
InvestingPro Insights
Wells Fargo's recent price target increase for Pinnacle West Capital (NYSE:PNW) coincides with notable InvestingPro data that can offer additional context for investors. With a market capitalization of $8.86 billion and a P/E ratio of 17.08, Pinnacle West is trading at a valuation that reflects stability in the utilities sector. The company's revenue growth over the last twelve months has been a modest 4.84%, showcasing consistent performance. Importantly, Pinnacle West has demonstrated a strong return over the last three months, with a price total return of 15.04%, signaling investor confidence in the firm's outlook.
InvestingPro Tips further highlight that while Pinnacle West operates with a significant debt burden, it has raised its dividend for 12 consecutive years and has maintained dividend payments for 32 consecutive years. This track record of dividend reliability is an attractive feature for income-focused investors, especially with a current dividend yield of 4.51%. For those considering a deeper dive into Pinnacle West's financials and future prospects, InvestingPro offers additional tips and metrics. There are currently 9 more tips available that can provide further guidance, which can be accessed with the use of the coupon code PRONEWS24 for an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
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