Investors constantly seek the holy grail of stock valuation: finding those stocks that trade below their intrinsic value to secure long-term gains. Pinnacle West Capital Corp (PNW, Financial), with its recent daily gain of 2.58% and a 3-month loss of 5.3%, presents an interesting case. The company's Earnings Per Share (EPS) stand at 4.2, but the pressing question remains: is Pinnacle West Capital modestly undervalued? This article delves into the valuation analysis of Pinnacle West Capital, offering investors a detailed perspective on whether now is an opportune time to invest.
Company Introduction
Pinnacle West Capital Corp (PNW, Financial) is not just any utility firm; it's a beacon of electricity in central Arizona, including the bustling metropolis of Phoenix. As a holding company, its principal subsidiary, Arizona Public Service, boasts a substantial customer base of 1.4 million over a vast 35,000-square-mile territory. With a diverse energy mix that includes a significant stake in the U.S.'s largest nuclear plant, Palo Verde, Pinnacle West Capital is a key player in the clean energy sphere. When evaluating Pinnacle West Capital, one must consider the company's GF Value, a gauge of its fair market value. At present, the stock's price of $73.26 contrasts with a GF Value of $88.54, suggesting a potential undervaluation worth exploring.
Summarize GF Value
The GF Value is a unique measure, crafted to estimate the intrinsic value of a stock like Pinnacle West Capital (PNW, Financial). It's the confluence of historical trading multiples, an adjustment factor reflecting past returns and growth, and projected business performance. If Pinnacle West Capital's share price strays significantly above this line, it could signal an overvaluation, while a price well below might indicate a stock ripe for investment. Currently, with a market cap of $8.30 billion, Pinnacle West Capital appears modestly undervalued, hinting at a potentially brighter future for its shareholders.
Assessing Financial Strength
Investors must tread carefully, especially when it comes to companies with questionable financial strength, as this could lead to permanent capital loss. By examining metrics like the cash-to-debt ratio, we gain insight into Pinnacle West Capital's financial resilience. Unfortunately, with a cash-to-debt ratio of 0, ranking lower than its peers in the Utilities - Regulated industry, Pinnacle West Capital's financial strength is a concern, reflected in a GuruFocus ranking of 3 out of 10.
Profitability and Growth
Profitability is a key indicator of a company's health, and Pinnacle West Capital has maintained a strong track record over the past decade. With a revenue of $4.70 billion and an Earnings Per Share (EPS) of $4.2, coupled with an operating margin of 16.7%, the company's profitability is commendable. However, growth is equally critical, and Pinnacle West Capital's 3-year average revenue and EBITDA growth rates suggest it's holding its own amidst industry competition.
ROIC vs WACC
Comparing Return on Invested Capital (ROIC) with the Weighted Average Cost of Capital (WACC) offers another vantage point on profitability. Ideally, ROIC should exceed WACC for a company to be considered a value creator. Pinnacle West Capital's ROIC of 3.05 falls short of its WACC of 5.35, suggesting the company must improve its capital efficiency to enhance shareholder value.
Conclusion
In summary, Pinnacle West Capital (PNW, Financial) is currently positioned as modestly undervalued. Despite its less than ideal financial condition, the company's profitability remains fair and its growth prospects are competitive within the Utilities - Regulated industry. For a more granular view of Pinnacle West Capital's financials, investors can peruse the 30-Year Financials here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
