By Peet Serfontein, Hashmeel Suka
Pinnacle West Capital is the holding company for the state of Arizona's largest and longest-serving electric utility company, Arizona Public Service (APS). APS provides retail and wholesale electric services including the transmission and distribution of electricity to more than 1.4 million residential, commercial, and industrial customers throughout the region. PNW, through another subsidiary, is also involved in real estate development activities in the western US.
Growth over the past five years has been mixed for the company. On a compounded-annual basis, the top-line has seen an improvement of around 5% over this period, though the bottom-line has been flat. FY21 was particularly strong (adjusted EPS: +12.3%, revenue: +6%) but despite robust demand since, the bottom-line has come under some pressure.
Technically, the stock is forming a symmetrical triangle pattern (refer to the first chart) characterised by the convergence of two opposing trendlines (one ascending and one descending) which connect a series of sequentially lower peaks and higher troughs. This pattern signifies a period of consolidation in the stock before an expected break toward the upside. Against a backdrop of a broader upward trend, this pattern is seen as a bullish indicator.
Per the Heikin-Ashi candlestick chart (not displayed) the stock is displaying a series of green candles - an occurrence whereby the closing price of the stock is higher than the opening price. This series indicates a sustained upward trend in the stock, underpinned by continued buying pressure and strong bullish sentiment.
The stock remains below a confluence of its 200-day ($74.77) and 200-week simple moving averages. In this instance, the confluence is seen as a bullish indicator.
Upside price momentum, according to the MACD indicator, the presence of a trough in the Coppock Curve, as well as sidewards movement of the on-balance volume indicator, all support our bullish view.
Share Information
| Share Code | PNW US |
|---|---|
| Industry | Utilities |
| Market Capital (USD) | 8.3 billion |
| One Year Total Return | -5.19% |
| Return Year-to-Date | 2.94% |
| Current Price (USD) | 73.02 |
| 52 Week High (USD) | 86.03 |
| 52 Week Low (USD) | 65.20 |
| Financial Year End | December |
| The stock has made a decent recovery over the past few weeks, and we expect a further push toward the upside. |
Consensus expectations
(Bloomberg)
| FY23 | FY24E | FY25E | FY26E | |
|---|---|---|---|---|
| Headline Earnings per Share (USD) | 4.41 | 4.69 | 4.91 | 5.27 |
| Growth (%) | 6.44 | 4.58 | 7.25 | |
| Dividend Per Share (USD) | 3.49 | 3.54 | 3.62 | 3.70 |
| Growth (%) | 1.32 | 2.23 | 2.30 | |
| Forward PE (times) | 15.37 | 14.60 | 13.87 | |
| Forward Dividend Yield (%) | 4.87 | 4.98 | 5.06 | |
| Bottom-line growth over the near-to-medium term is expected to be decent. | ||||
Rationale
Technical Analysis:
Long-term fundamental view:
| Share Name and position | CMCSA - Stop Loss (Close the Position) | CSCO - Stop Loss (Close the Position) | CVX - Buy (Continue to hold) |
|---|---|---|---|
| Entry | 43.19 | 49.88 | 147.89 |
| Current | 41.11 | 48.11 | 160.69 |
| Movement | -4.8% | -3.5% | 8.7% |
| The stock has reached our stop-loss level. | The stock has reached our stop-loss level. |
The price is holding above key support. The stock is above its 200-day moving average. Upside momentum remains supportive.
Our profit target is $167, with a stop-loss of $154. Exit the position around 28 June 2024. |
| Share Name and position | FSLR - Buy (Continue to hold) | VVX - Buy (Continue to hold) | BDX - Buy (Continue to hold) |
|---|---|---|---|
| Entry | 159.06 | 45.19 | 237.07 |
| Current | 171.46 | 46.17 | 243.05 |
| Movement | 7.8% | 2.2% | 1.7% |
|
A price action to the lower one standard deviation in the linear regression channel remains of interest. The stock crossed above its 200-day simple moving average. Upside price momentum supports the trade.
Our profit target is $190, with a trailing stop-loss at $155. Exit the trade by 9 April 2024. |
The price is making higher lows and higher highs and thus remains of interest. The stock continues to test its 200-day moving average, with our counter-trend strategy remaining intact. Upside momentum remains supportive.
Our profit target is $52, with a trailing stop-loss of $43.30. Exit the position around 10 July 2024. |
The presence of a well- established price range remains attractive. The stock remains below its 200-day moving average, with the counter-trend strategy remaining intact. Upside momentum has halted which is a concern.
Our profit target is $265, with a trailing stop-loss of $233.50. Exit the position around 24 April 2024. |
