Pinnacle West: Demand For Its Electricity Is Booming

Demand Drivers and Growth Potential - The demand for electricity in Phoenix is expected to grow significantly due to population growth, manufacturing expansion, and the establishment of data centers, with Phoenix projected to have a population growth rate of 5.66% from 2020 to 2024, compared to the national average of 1.42% [34][33] - PNW's growth is anticipated to come from three main sources: positive adjustments from rate cases, increased rate base, and operating cost efficiencies [39][21] - The company has a substantial growth pipeline, with an estimated total investment opportunity of over $5 billion in transmission assets over the next ten years [20][46] Financial Performance and Valuation - PNW is trading at 10.52X forward EBITDA, which is lower than the sector average of 12.08, indicating a potentially undervalued position in the market [15][55] - The company's rate base is expected to grow from $11.9 billion in 2022 to $16.1 billion in 2026, representing a 35% increase [60][61] - Operating and maintenance expenses have increased at a rate of 1.86% annually over the last seven years, which is significantly lower than the CPI inflation rate of 3.5% [40][64] Operational Competence and Market Position - PNW has demonstrated a solid track record in translating asset growth into shareholder value, with dividends increasing steadily for decades [27][26] - The company has maintained a competitive edge by providing reliable and affordable electricity, which is crucial for sustaining its territorial advantage [51][52] - Despite the stock price underperformance since 2020, PNW has shown strong fundamentals, with cash flow and dividends per share continuing to grow [54][67]