On Monday, Jefferies initiated coverage on Avista Corporation (NYSE:AVA) stock with a Hold rating, accompanied by a price target set at $40.00. According to InvestingPro data, Avista currently trades at a P/E ratio of 14.67 and maintains a GOOD financial health score.
The firm's analysis points to Avista as a company with potential for return on equity (ROE) improvement. The growth for the utility is expected to hinge on receiving rate relief and overcoming regulatory lag in the challenging Washington market.
The analyst noted that Avista's performance is likely to be influenced by its ability to demonstrate a successful increase in earned ROE. Despite this potential for improvement, the shares have been valued at a 15% discount in line with Western small-to-midsize utilities.
This valuation reflects the market's view of the company's modest 5% compound annual growth rate (CAGR) in earnings per share (EPS). Notably, InvestingPro reveals that Avista has maintained dividend payments for 54 consecutive years, with a current attractive yield of 5.1%.
The report further elaborates that long-term interest from data centers in the region could serve as a positive influence and provide an upside to the current outlook for Avista. The company has demonstrated solid revenue growth of 10.22% over the last twelve months, though InvestingPro data indicates it operates with a significant debt burden.
For now, the firm maintains a cautious stance due to the need for Avista to prove its execution capabilities in achieving the anticipated step-up in ROE.
Jefferies' price target of $40.00 implies a total shareholder return (TSR) of 12%. This target is set in the context of the firm's current financial trajectory and the broader economic conditions affecting utilities in the Western United States.
The Hold rating suggests that Jefferies advises investors to maintain their current position on Avista shares until there are clear signs of the company's ability to navigate its regulatory environment and deliver on its growth promises.
In other recent news, Avista Corporation reported increased earnings for the third quarter, with consolidated earnings of $0.23 per diluted share, up from $0.19 from the same period of the previous year.
However, the company has lowered its full-year 2024 earnings guidance due to higher power supply costs and other expenses. Notably, Avista has made significant investments in renewable energy and infrastructure, including the completion of the Clearwater Wind Project.
Despite the lowered guidance, the corporation has successfully implemented wildfire mitigation efforts, such as AI-enabled fire detection cameras, and maintains strong liquidity with $212 million available under a committed line of credit.
In addition, Avista has invested over $2 billion in its system over the past five years and signed four power purchase agreements for 325 megawatts of renewable energy, aiming for over 70% of its peak generating capacity to come from non-emitting sources by 2026.
These are recent developments that also include the ongoing North Plains Connector Transmission Project, with definitive agreements expected within the next 6-9 months. Avista anticipates a constructive rate order from Washington in December and plans to file general rate cases in Oregon and Idaho in 2025. The company continues to focus on significant investments in the coming years, with capital expenditures for 2024 projected to be $515 million.
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