Pinnacle West Capital (Pinnacle West Capital) Predictability Rank

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Warren Buffett said many times that the companies he likes are:

1. Simple businesses that he understands
2. that have predictable and proven earnings and
3. with economic moat
4. those can be bought at a reasonable price.

It is hard to quantify "simple businesses that he (Buffett) understands", so we will focus on the other three characteristics instead. In GuruFocus Research: What worked in the market from 1998-2008? Part I: Introduction of Predictability Rank, we will show that the businesses that have predictable and proven earnings are usually also simple businesses that an average person could understand.

GuruFocus conducted a back test study of Warren Buffett's strategy of "buying good companies at fair prices" for the years from 1998-2008.

Pinnacle West Capital Predictability Rank Calculation

In our database there are 2403 stocks that have been traded from Jan. 2, 1998 to Aug. 31, 2008. We have the complete 10-year financial data and trading prices of these companies for this period. We rank the predictability of these companies based on the consistency of their revenue per share and EBITDA (earning before interest, tax, depreciation and amortization) per share over the past ten fiscal years, and study the correlation between the stock performances and the predictability of the business.

Our study may be subject to these biases and assumptions:

Dividend yields are not counted for investment returns
Effects of price changes due to spin-offs may not be fully adjusted
Study is subjected to survivorship bias due to de-listing, bankruptcy, LBO, M&A, etc.

The correlation between business predictability and investment returns of a company is showed below.

Correlation Between Business Predictability and Investment Returns

	Predictables	Non-Predictable	All stocks
Total Number of stocks	570	1833	2403
Total Lost Money	61	830	891
Total Lost More Than 50%	18	412	430
Total Lost More Than 90%	4	86	90
Average Gain	260.6%	100.0%	138.1%
Median Gain	150.0%	13.0%	39.0%
Maximum Gain	2852.0%	11483.0%	11483.0%
Maximum Loss	-100.0%	-100.0%	-100.0%
Annualized Average Gain	12.7%	6.7%	8.4%
Annualized Median Gain	8.9%	1.1%	3.1%

For the 570 predictable companies, we have seen strong correlation between the predictability of businesses and the stock performances over the past 10 years, regardless of the valuation of business at 1998. Accordingly, we have ranked the business predictability from 5-star to 1-star, as shown in this table.

Predictability Rank	5-Star	4.5-Star	4-Star	3.5-Star	3-Star	2.5-Star	2-Star	1-Star (non-predictable)	Average among all
% Out of All 2403 Stocks	3.3%	2.9%	3.7%	3.3%	3.3%	3.7%	3.3%	76.3%	100%
% that are in Loss (10y)	3%	10%	8%	9%	11%	18%	16%	45%	37%
Average Gain (10y)	364.6%	330.9%	278.0%	235.1%	243.5%	227.8%	154.8%	100.0%	138.1%
Median Gain (10y)	238.5%	193.5%	171.0%	159.0%	132.5%	113.5%	87.0%	13.0%	39.0%
Maximum Gainer	2228.0%	2547.0%	2452.0%	2852.0%	2432.0%	1892.0%	1807.0%	11483.0%	11483.0%
Maximum Loser	-82.0%	-53.0%	-67.0%	-100.0%	-83.0%	-100.0%	-78.0%	-100.0%	-100.0%
Annualized Average Gain	15.4%	14.6%	13.2%	12.0%	12.2%	11.7%	9.1%	6.7%	8.4%
Annualized Median Gain	12.1%	10.6%	9.8%	9.3%	8.2%	7.3%	6.0%	1.1%	3.1%

For detailed information about each predictability rank, please go to GuruFocus Research: What worked in the market from 1998-2008? Part I: Introduction of Predictability Rank

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Pinnacle West Capital (Pinnacle West Capital) Business Description

Industry

GURUFOCUS.COM » STOCK LIST » Utilities » Utilities - Regulated » Pinnacle West Capital Corp (NYSE:PNW) » Definitions » Predictability Rank

Comparable Companies

OGE IDA EVRG POR LNT PNM AGR MGEE HE GNE NEE SO DUK LSE:NG. AEP PCG D BOM:532555 EXC PEG

Traded in Other Exchanges

PWC:Germany

Address

400 North Fifth Street, P.O. Box 53999, Phoenix, AZ, USA, 85072-3999

Website

https://www.pinnaclewest.com

Pinnacle West is a holding company whose principal subsidiary is Arizona Public Service, a vertically integrated electric utility that serves 1.4 million customers across a 35,000-square-mile territory in central Arizona, including Phoenix. APS owns or leases more than 6 gigawatts of power generation capacity, including a 29% ownership stake in the largest nuclear plant in the U.S., Palo Verde. About half of the electricity that APS supplies to customers comes from clean energy sources, including nuclear.

Executives

Robert Edgar Smith	officer: EVP, GC, and CDO	400 NORTH FIFTH STREET, MAIL STATION 8602, PHOENIX AZ 85004
Paul J Mountain	officer: VP, Finance and Treasurer	400 N 5TH ST, PHOENIX AZ 85004
Jeffrey B. Guldner	director, officer: Chairman, President and CEO	400 N. FIFTH STREET, MS8695, PHOENIX AZ 85004
Donna M Easterly	other: SVP HR APS	400 NORTH FIFTH STREET, MAIL STATION 8602, PHOENIX AZ 85004
Elizabeth A Blankenship	officer: VP, Controller and CAO	400 NORTH FIFTH STREET, MAIL STATION 8602, PHOENIX AZ 85004
Andrew D Cooper	officer: SVP & CFO	400 NORTH 5TH STREET, MS 8602, PHOENIX AZ 85004
Jacob Tetlow	other: EVP, Ops, APS	400 N. FIFTH ST, MS 8602, PHOENIX AZ 85004
Theodore N Geisler	other: President, APS	400 NORTH FIFTH STREET, MAIL STATION 8602, PHOENIX AZ 85004
Kristine L Svinicki	director	30 IVAN ALLEN JR BLVD NW, ATLANTA GA 30308
Esparza Jose Luis Jr	other: SVP, Public Policy, APS	8360 S. DURANGO DR., LAS VEGAS NV 89113
Barbara D Lockwood	other: VP, Regulation, APS	400 NORTH FIFTH STREET, MAIL STATION 8602, PHOENIX AZ 85004
Adam C Heflin	other: EVP & CNO	1901 CHOUTEAU AVENUE, P. O. BOX 66149, MC-1370, ST. LOUIS MO 63166-6149
De La Melena Gonzalo A Jr	director	400 N 5TH ST, PHOENIX AZ 85004
James R Hatfield	officer: SVP & CFO, PNW & APS	P O BOX 321 MC/1110, OKLAHOMA CITY OK 73101
William H Spence	director	UNIVERSITY OFFICE PLAZA, 252 CHAPMAN RD., PO BOX 6066, NEWARK DE 19714-0066