Credit Suisse Upgrades Pinnacle West Capital On Economic Recovery In Arizona

In a report published Wednesday, Credit Suisse analyst Dan Eggers upgraded the rating on

from Neutral to Outperform, while maintaining the price target at $71. The analyst said that the company's stock represented "an attractive relative entry point with good optionality" to the economic recovery in Arizona. Pinnacle West Capital is expected to generate EPS growth of more than 5 percent through 2018, in view of its current capex plans and continued O&M cost management. "We could see upside if the economy starts to get better with tighter housing potentially creating an opportunity for more growth," analyst Dan Eggers wrote. In the report Credit Suisse noted, "Rooftop solar additions are still coming into Phoenix but the policy trends toward more fixed charges on customer bills (where the munis have been most visible) and efforts by PNW for utility owned residential solar are helping to temper this risk. A decision to increase PNW's fixed charge this summer would be nice but not imperative to the story in our minds." Market interest in single-state utilities has been "good" and Pinnacle West Capital is among the few that "still fits that bill." Past deals have cleared at premiums of about 25 percent, "leaving a nice layer of optionality at least," Eggers said. Pinnacle West Capital's stock is currently trading at a discount to peers, although the company offers a dividend yield of 4.3 percent, which is higher than the group, at 4.1 percent. "PNW offers an attractive value preposition among the regulated utilities with annual rates of return at 14%," the report added.