BofA Securities has initiated coverage on shares of Avista Corporation (NYSE: NYSE:AVA), a utility company based in Washington, with an Underperform rating.
The firm set a price target of $37.00 for the stock, suggesting a slight downside from the current market price.
The initiation of the coverage comes with concerns about the company's earnings outlook and the regulatory environment in which it operates.
According to the BofA Securities analyst, Avista's less constructive regulatory oversight, its slower relative earnings growth profile, and a weaker than average balance sheet are factors that contribute to the Underperform rating.
Furthermore, the analyst sees limited capital expenditure upside for Avista in the near to intermediate term.
BofA Securities forecasts Avista's earnings per share (EPS) for the fiscal years 2024, 2025, and 2026 to be $2.38, $2.50, and $2.58, respectively. These projections are below the consensus estimates of $2.43 for FY24, $2.63 for FY25, and $2.75 for FY26, indicating a more conservative view of Avista's financial performance in the coming years.
The price objective of $37.00 reflects a 2% downside from the stock's current price level, with an anticipated total return of 3%. This target is based on a 2026 sum-of-the-parts (SOTP) analysis. BofA Securities applied a multiple of 15.8 times to the electric group and 15.4 times to the regulated gas segment. Additionally, a 15% discount was applied to Avista's businesses in Washington, Idaho, and Oregon to arrive at the price target.
In other recent news, Avista Corp . has reported robust financial results for the second quarter of 2024. Earnings per diluted share increased to $0.29 from $0.23 in the same quarter of the previous year, and year-to-date earnings rose to $1.20 per diluted share, up from $0.96.
The positive performance is attributed to Avista's significant investments in infrastructure, wildfire mitigation, and clean energy. The company is on track to meet its 2024 earnings guidance of $2.36 to $2.56 per diluted share.
In addition to financial results, Avista has announced the appointment of Heather Rosentrater as its new CEO, effective January 1, 2025. She will become the first woman to hold the CEO position in the company's history, succeeding Dennis Vermillion. Avista also plans to transfer its interest in the Colstrip coal-fired plant by the end of 2025 and anticipates earnings growth of 4% to 6% from a 2025 base year, pending positive rate case outcomes.
Despite facing challenges such as a negative impact of $0.07 per diluted share due to the 90% customer, 10% company sharing band, Avista remains focused on strategic discussions and rate case filings to mitigate these effects. The company is also considering monetizing some nonregulated business investments in the future.
InvestingPro Insights
In light of the recent analysis by BofA Securities on Avista Corporation, InvestingPro offers additional insights that may be valuable to investors considering the utility company's stock. Avista has shown a commitment to shareholder returns, having raised its dividend for 21 consecutive years and maintaining dividend payments for 54 consecutive years. This demonstrates a strong track record of returning capital to shareholders, which is corroborated by a significant dividend yield of 5.03% as of the last twelve months leading up to Q2 2024.
The company's current P/E ratio stands at 15.15, which, when paired with a PEG ratio of 0.55, suggests that the stock may be trading at a low price relative to near-term earnings growth. This aligns with one of the InvestingPro Tips indicating Avista's attractive valuation in the context of its earnings potential. Additionally, Avista's revenue has grown by 10.69% over the last twelve months leading up to Q2 2024, indicating a healthy top-line performance.
However, potential investors should be mindful of Avista's financial health, as the company operates with a significant debt burden and its short-term obligations exceed liquid assets. These factors could contribute to the concerns raised by BofA Securities regarding Avista's weaker than average balance sheet.
For investors seeking a deeper analysis, there are additional InvestingPro Tips available on the platform, providing a comprehensive understanding of Avista's financial and operational outlook. For instance, analysts predict the company will be profitable this year, which is a positive sign for those concerned about the company's earnings outlook. To explore these insights further, investors can find a total of 8 InvestingPro Tips for Avista Corporation at https://www.investing.com/pro/AVA.
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