Utilities benefit from various favorable factors, such as new electric rates, customer additions, cost management and the implementation of energy-efficiency programs. Also, the ongoing investments to improve the resiliency of electric infrastructure against extreme weather conditions and the ongoing transition to cost-effective, renewable energy sources to produce electricity aid the power industry.

Utility service providers generally enjoy consistent revenue growth and profitability. Due to their capacity to create cash flows and manage returns, utilities are able to enhance shareholder value via regular dividend payments.

Due to their capital-intensive nature, utilities need a steady stream of funding for new asset acquisitions and infrastructure improvements. The Fed has already reduced its fund rate by a cumulative 1 percentage point since September 2024. More interest rate cuts are expected in 2025. Due to the rate decline, capital-intensive utilities should have better prospects. This is because their capital servicing costs will decrease, increasing margins and profitability.

The U.S. electric power sector is gradually moving toward cleaner energy sources to produce electricity. Most of the companies have pledged to deliver 100% clean energy and achieve the zero-emission target in the coming years. The government is also assisting in increasing the use of renewable energy through tax credits. It also helps operators achieve the long-term objective of carbon neutrality by 2050.

Per a U.S. Energy Information Administration (“EIA”) report, the annual share of U.S. electricity generation from renewable energy sources will be 23% in 2024 and 25% in 2025. EIA also expects U.S. sales of 2% more electricity this winter than last year. The increase can be attributed to 3% more sales to residential customers because of colder weather than the previous year.

In this blog, we run a comparative analysis on two Zacks Utility — Electric Power companies — IDACORP IDA and Pinnacle West Capital Corporation PNW — to decide which one is a better pick for your portfolio.

Both companies carry a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

IDACORP has a market capitalization of $5.88 billion, while Pinnacle West Capital has $9.73 billion.

IDA & PNW’s Growth Projections & Surprise History

The Zacks Consensus Estimate for IDACORP’s 2024 earnings is pinned at $5.42 per share on revenues of $1.85 billion. This implies a year-over-year bottom-line increase of 5.5% and a top-line improvement of 4.5%.

The Zacks Consensus Estimate for Pinnacle West Capital’s 2024 earnings is pegged at $5.14 per share on revenues of $5.05 billion. This indicates year-over-year bottom and top-line growth of 16.6% and 7.6%, respectively.

IDA & PNW Stocks’ Price Performance

In the past six months, IDA’s shares have risen 19.9% compared with the industry's growth of 7.2%. Shares of PNW have risen 13.3% in the same time frame.

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IDA & PNW’s Debt Position

The debt-to-capital ratio is a vital indicator of the financial position of a company. It shows the amount of debt used to run a business. Currently, IDACORP and Pinnacle West Capital have a debt-to-capital of 48.8% and 59%, respectively, compared with the industry’s 61.32%.

The times interest earned (TIE) ratio for IDA is 2.9, and that for PNW is 2.8. Since both companies have a TIE ratio exceeding one, it indicates that they have enough financial flexibility to meet their near-term interest obligations.

IDA & PNW’s Liquidity

A current ratio of greater than one indicates that the company has enough short-term assets to liquidate to cover its short-term liabilities, if necessary. IDA’s current ratio is 1.71, better than the industry’s average of 0.77, while PNW’s current ratio is 0.71.

IDA & PNW’s Dividend Yield

Utility companies generally distribute dividends and increase shareholders’ value. Currently, the dividend yield for IDACORP is 3.12%, and the same for Pinnacle West Capital is 4.18%. The dividend yields of these companies are better than the Zacks S&P 500 composite’s average of 1.19%.

Final Decision

Both IDACORP and Pinnacle West Capital stocks are well-positioned and, hence, wise investments for your portfolio. They have the potential to improve further from their current position and serve the demands of their growing customer base. However, our choice at this moment is IDA, given its better debt management, TIE ratio, liquidity and price performance than PNW.

 

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