Amidst the daily fluctuations of the stock market, Pinnacle West Capital Corp (PNW, Financial) has recently experienced a 2.58% gain, yet over the past three months, it has seen a decline of 5.33%. With an Earnings Per Share (EPS) of 4.2, investors are contemplating whether the stock is modestly undervalued. This article delves into the valuation analysis of Pinnacle West Capital, providing insights into whether now might be an opportune time to invest.
Company Introduction
Pinnacle West Capital Corp (PNW, Financial) is a formidable entity in the utilities sector, with its principal subsidiary, Arizona Public Service, serving a vast customer base across central Arizona. The company boasts a significant stake in the U.S.'s largest nuclear plant and derives approximately half of its electricity from clean energy sources. Currently, Pinnacle West Capital's stock price is $73.65, while the GF Value estimates its fair value at $88.54, indicating that the stock may be modestly undervalued.
Understanding the GF Value
The GF Value is a unique valuation tool that provides an estimation of a stock's intrinsic value. It encompasses historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance projections. When a stock's price aligns closely with the GF Value Line, it is considered fairly valued. If the price is significantly above, the stock may be overvalued, and conversely, if it is below, it could indicate undervaluation. For Pinnacle West Capital, the current stock price suggests it may be modestly undervalued, potentially offering a higher long-term return than its business growth alone might suggest.
Financial Strength Assessment
Investing in companies with robust financial strength is crucial to avoid potential capital loss. Pinnacle West Capital's financial strength is concerning, with a cash-to-debt ratio of 0, ranking lower than the majority of its peers in the industry. This assessment places the company's financial strength at a weak 3 out of 10, indicating a poor balance sheet that investors should consider.
Profitability and Growth Prospects
Profitable companies, especially those with consistent performance, pose less investment risk. Pinnacle West Capital has maintained profitability over the past decade, with a solid operating margin of 16.7%, placing it favorably within its industry. The company's profitability rank is a commendable 7 out of 10. However, its growth metrics show mixed results, with revenue and EBITDA growth rates hovering around the industry median. This data suggests that while Pinnacle West Capital is maintaining profitability, its growth trajectory is average compared to its peers.
ROIC vs. WACC Analysis
Comparing a company's Return on Invested Capital (ROIC) to its Weighted Average Cost of Capital (WACC) is another method to assess value creation. Pinnacle West Capital's ROIC over the past year stands at 3.05, which is below its WACC of 5.3, suggesting the company may not be creating value for shareholders. This comparison is a critical factor for investors to consider.
Conclusion
In conclusion, Pinnacle West Capital appears to be modestly undervalued based on the GF Value, with fair profitability but less impressive financial strength and growth rates. As investors contemplate this information, they can further explore the company's 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.
