Pinnacle West Capital Corp (PNW, Financial) has recently seen a daily gain of 1.84%, but has a three-month loss of -4.06%. With an Earnings Per Share (EPS) (EPS) of 3.58, the question arises: Is the stock modestly undervalued? This article aims to provide an in-depth analysis of Pinnacle West Capital's valuation, encouraging readers to delve into the financial metrics and performance indicators that are critical to making informed investment decisions.
Pinnacle West Capital Corp is a holding company with its principal subsidiary, Arizona Public Service, being a vertically integrated electric utility. The company serves 1.3 million customers across a 35,000-square-mile territory in central Arizona, including Phoenix. With more than 6 gigawatts of power generation capacity, Pinnacle West Capital has a significant presence in the energy sector. As of September 06, 2023, the company's stock price stands at $75.44, while the Fair Value (GF Value) is $87.98, indicating that the stock might be modestly undervalued.
Understanding GF Value
The GF Value is a proprietary measure that represents the current intrinsic value of a stock. It is based on historical trading multiples, a GuruFocus adjustment factor, and future business performance estimates. The GF Value Line on the summary page gives an overview of the fair value at which the stock should ideally be traded. If the stock price is significantly above the GF Value Line, it is overvalued, and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher.
According to GuruFocus Value calculation, the stock of Pinnacle West Capital (PNW, Financial) is believed to be modestly undervalued. At its current price of $75.44 per share and the market cap of $8.50 billion, Pinnacle West Capital stock shows promising future returns due to its relative undervaluation.These companies may deliver higher future returns at reduced risk.
Assessing a company's financial strength is crucial to avoid the risk of permanent capital loss. Key indicators of financial strength include the cash-to-debt ratio and interest coverage. Pinnacle West Capital's cash-to-debt ratio is 0, ranking worse than 0% of 480 companies in the Utilities - Regulated industry. The overall financial strength of Pinnacle West Capital is 3 out of 10, indicating poor financial health.
Profitability and Growth
Investing in profitable companies, especially those demonstrating consistent profitability over the long term, poses less risk. Pinnacle West Capital has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $4.50 billion and an EPS of $3.58. Its operating margin is 15.14%, which ranks better than 58.35% of 497 companies in the Utilities - Regulated industry. Overall, GuruFocus ranks the profitability of Pinnacle West Capital at 7 out of 10, indicating fair profitability.
Growth is a critical factor in the valuation of a company. Pinnacle West Capital's 3-year average revenue growth rate is worse than 51.77% of 481 companies in the Utilities - Regulated industry. However, its 3-year average EBITDA growth rate is 4.8%, which ranks better than 52.4% of 458 companies in the industry.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) to the weighted average cost of capital (WACC) is another method of determining its profitability. ROIC measures how well a company generates cash flow relative to the capital it has invested in its business. WACC is the rate that a company is expected to pay on average to all its security holders to finance its assets. For the past 12 months, Pinnacle West Capital's ROIC is 2.68, and its WACC is 5.05, implying that the company is not creating value for shareholders.
In conclusion, the stock of Pinnacle West Capital (PNW, Financial) is believed to be modestly undervalued. Although the company's financial condition is poor, its profitability is fair, and its growth ranks better than 52.4% of 458 companies in the Utilities - Regulated industry. For more details about Pinnacle West Capital stock, you can check out its 30-Year Financials here.
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