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UPDATE: Guggenheim Double Downgrades Pinnacle West Capital (PNW) to Sell

October 7, 2021 9:21 AM EDT
Get Alerts PNW Hot Sheet
Price: $69.67 --0%

Rating Summary:
    1 Buy, 6 Hold, 11 Sell

Rating Trend: Up Up

Today's Overall Ratings:
    Up: 6 | Down: 5 | New: 14
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(Updated - October 7, 2021 9:22 AM EDT)

Guggenheim analyst Shahriar Pourreza downgraded Pinnacle West Capital (NYSE: PNW) from Buy to Sell with a price target of $58.00 (from $97.00.)

The analyst comments "We are downgrading PNW two notches to SELL from BUY. This negative revision in our thesis represents a forward fundamental deterioration call, a negative earnings revision call, incremental equity/balance sheet worsening call, a call that reflects the state of AZ being the most value destructive state in the country including within our +40 utilities under coverage, and lastly, this ratings change is also a valuation call as the utilities earnings power for ‘22/’23, all else equal, points to a utility that has moved from a discounted name to one that is now overvalued. The Arizona Corporation Commission has now confirmed that they are the single most value destructive regulatory environment in the country as far as Investor Owned Utilities are concerned. In our view, rather than positioning itself as a steward of good public policy and a guardian of ratepayers’ interests, as is often the case in other states, the ACC does not appear to take a cooperative approach to the companies it regulates, and worse, seems to misconstrue the fundamentals of utility ratemaking. We are particularly concerned about the severe and immediate risk posed to the company’s earnings, cash flows, and balance sheet, which appears likely to lead to credit rating downgrades and higher near-term equity financing needs. Given the current makeup of the commission, we therefore see little hope for any sort of outside intervention and believe the status quo is likely to persist. Based on our current 2022 EPS estimate of $5.23, we apply a 40% discount vs a peer average multiple to arrive at our new PT of $58 (vs $97 previously). Theoretically, based on the implied impacts of adopting the amended ROO as it currently stands, 2022 EPS might end up closer to $3.50, which would mean the stock is currently being valued at 21.2x on yesterday’s close, and therefore expensive in our view."

For an analyst ratings summary and ratings history on Pinnacle West Capital click here. For more ratings news on Pinnacle West Capital click here.

Shares of Pinnacle West Capital closed at $74.18 yesterday.


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