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Energy company Avista Corp (NYSE:AVA) expects 9-10-percent annual EPS growth through 2022, which seems difficult to achieve given that it relies on substantial rate hikes, according to Bank of America Merrill Lynch.
The Analyst
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Richard Ciciarelli initiated coverage of Avista with an Underperform rating and $43 price objective.
The Thesis
Avista’s EPS growth projections hold risks, as 4-6 percent of annualized bill inflation would be required to meet the targets, Ciciarelli said in a Thursday initiation note.
Not only is this bill inflation rate among the highest in the sector, but the timing of rate implementation in Washington could add to the challenge, given that new rates would not be effective until after the first quarter of 2020, the analyst said.
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“AVA will have to navigate through several regulatory dockets over the next few years, in jurisdictions where it has received less than favorable treatment in the past,” Ciciarelli said. Moreover, the company has faced challenges in operational execution in the past, he said.
The premium to BofA’s 2021 EPS estimate of $2.18 implied by the company’s guidance is unwarranted in view of the current regulatory environment and limited upside to capital spending, the analyst said.
The stock appears overvalued at current levels, given the substantial rate risk ahead, which could impede the company’s EPS growth trajectory, according to BofA.
Price Action
Avista shares were down 0.31 percent at $42.36 at the time of publication Thursday.
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Crypto Whales Are Loading Up — Are You?
New research shows the biggest crypto buyers are back. And this time? They could hold for the possibility that Bitcoin will surpass $100,000 in 2024. You don’t want to miss the next massive crypto bull run like we saw in 2020 and 2021. To know exactly what’s going on and what to buy… Get Access To Benzinga’s Best Crypto Research and Investments For Only $1.