Pinnacle West Capital (PNW) Could Be 1% Overvalued After Rally Near Fair Value
Pinnacle West Capital (PNW) is back on investor radars after recent trading left the stock around $106.06, with year to date total return figures and longer term performance drawing closer attention.
See our latest analysis for Pinnacle West Capital.
Recent trading around $106.06 caps a period where Pinnacle West Capital has seen short term share price returns soften, with the 7 day and 30 day share price returns slightly negative. At the same time, the year to date share price return of 20.33% and 1 year total shareholder return of 21.29% point to momentum that has been building over a longer horizon.
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After a strong run that leaves Pinnacle West Capital trading close to recent highs and near analyst price targets, the key question now is whether the current valuation still offers an attractive balance of risk and reward.
Most Popular Narrative: 1% Overvalued
The most followed narrative puts Pinnacle West Capital's fair value at $105.07, a touch below the recent $106.06 close, which leaves almost no gap between modeled worth and market price.
The analysts have a consensus price target of $105.07 for Pinnacle West Capital based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $128.0, and the most bearish reporting a price target of just $87.0.
Want to see what is baked into that fair value? The narrative leans heavily on steady revenue growth, rising margins and a future earnings multiple that assumes real staying power.
Result: Fair Value of $105.07 (OVERVALUED)
Have a read of the narrative in full and understand what's behind the forecasts.
However, Pinnacle West Capital still faces key risks, including potential regulatory delays and the chance that heavy capital spending results in underused assets if demand expectations fall short.
Find out about the key risks to this Pinnacle West Capital narrative.
Another View on Pinnacle West Capital's Valuation
While the popular narrative has Pinnacle West Capital trading only about 1% above an estimated fair value of $105.07, its current P/E of 19.7x tells a slightly different story. That multiple sits below the US Electric Utilities industry at 22.6x, the peer average of 23.4x, and even the company specific fair ratio of 20.6x.
In simple terms, the market is asking investors to pay less for each dollar of Pinnacle West Capital earnings than it pays for many similar utilities, and a bit less than where the fair ratio suggests the P/E could move over time. This may limit downside but also caps obvious upside. Which signal should be trusted more: the tight fair value model or the relative earnings multiple?
See what the numbers say about this price — find out in our valuation breakdown.
Next Steps
Unsure what to make of the mixed signals around Pinnacle West Capital's valuation, risks and rewards? Move quickly, review the data for yourself, and weigh the 4 key rewards and 3 important warning signs.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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