IDA or PNW: Which Is a Better Utility Electric Power Stock?

Core Insights - The U.S. electric power sector is transitioning towards cleaner energy sources, with companies aiming for 100% clean energy and zero emissions in the coming years, supported by government tax credits and a goal of carbon neutrality by 2050 [2] - IDACORP and Pinnacle West Capital Corporation are compared for investment potential, with IDACORP having a market capitalization of $5.88 billion and Pinnacle West at$9.73 billion [4] - IDACORP's 2024 earnings estimate is $5.42 per share on revenues of$1.85 billion, reflecting a 5.5% increase in earnings and a 4.5% increase in revenue year-over-year, while Pinnacle West's estimates are $5.14 per share on revenues of$5.05 billion, indicating a 16.6% increase in earnings and a 7.6% increase in revenue [5] - Over the past six months, IDACORP's shares have risen by 19.9%, outperforming the industry growth of 7.2%, while Pinnacle West's shares increased by 13.3% [6] Industry Factors - Utilities benefit from favorable factors such as new electric rates, customer additions, cost management, and energy-efficiency programs, alongside investments to enhance electric infrastructure resilience against extreme weather [7] - The Federal Reserve's reduction of the fund rate by 1 percentage point since September 2024 is expected to benefit capital-intensive utilities by lowering capital servicing costs, thus improving margins and profitability [8] - The U.S. Energy Information Administration projects that renewable energy will account for 23% of electricity generation in 2024 and 25% in 2025, with a 2% increase in electricity sales expected this winter compared to last year [9] Company Financials - IDACORP has a debt-to-capital ratio of 48.8%, while Pinnacle West's ratio is 59%, both below the industry average of 61.32% [12] - The times interest earned (TIE) ratio for IDACORP is 2.9 and for Pinnacle West is 2.8, indicating sufficient financial flexibility to meet near-term interest obligations [15] - IDACORP's current ratio is 1.71, significantly better than the industry average of 0.77, while Pinnacle West's current ratio is 0.71, suggesting IDACORP has better short-term asset management [16] Dividend Information - IDACORP's dividend yield is 3.12%, and Pinnacle West's is 4.18%, both exceeding the S&P 500 composite average of 1.19% [17] Investment Recommendation - Both IDACORP and Pinnacle West Capital are positioned as wise investments, but IDACORP is favored due to better debt management, TIE ratio, liquidity, and price performance [18]