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Home My WebLink AboutCOC IDA research note 04-16-10.pdf Please refer to pages 2-3 of this report for detailed disclosure and certification information. * D. A. Davidson & Co. makes a market in this security. RESEARCH NOTE Institutional Equity Research IDACORP, INC. April 16, 2010 IDA * – NYSE Rating: Buy Price: (4/16/10) $35.37 Price Targets: 12-18 month: ↑ $39.50 5-year: ↑ $48.00 Industry: Utilities James L. Bellessa, Jr., CFA 406.791.7230 jbellessa@dadco.com Michael Bates Research Associate 406.791.7216 mbates@dadco.com Maintaining Estimates Following NPSE Decision and PCA Filing • Utility’s settlement agreement unfolding as expected. The likely outcomes from a) a decision by Idaho regulators about net power supply expenses (NPSE), and b) an annual power cost adjustment (PCA) filing approximate the assumptions we made for IDACORP when a stipulated agreement was approved last January (see our Research Bulletin dated January 11, 2010). Consequently, our IDACORP 2010 and 2011 EPS estimates remain unchanged. • Net power supply increase allowed. The Idaho Public Utilities Commission (IPUC) conditionally granted Idaho Power (IPC) the authority to raise the NPSE component of base rates by up to $63.7 million. The allowed NPSE amount is approximately $11 million below the utility’s request of $74.8 million due to reductions made by the IPUC to IPC’s PURPA power purchase costs and the removal of IPC’s projected loads and revenues from industrial customer Hoku Corp. (HOKU - $2.61). These reductions to the proposed NPSE hike should largely be recovered at a later date once certain signed PURPA projects come on line and the ramp-up of Hoku’s new polysilicon plant in Pocatello, Idaho is completed. • Idaho Power filed its annual power cost adjustment (PCA), requesting a $146.7 million reduction in allowed power costs starting June 1, 2010. The PCA amount would be allocated according to a formula set by the settlement agreement as follows: A permanent $28.7 million annual increase in IPC revenues; a one-year $58 million reduction in customer rates; the aforementioned $63.7 million NPSE adjustment to base rates; and a $3.6 million offset for jurisdictional allocation differences. • Upcoming earnings report slated. IDACORP will release 1Q’10 results on May 6, 2010 before the stock market opens and conduct a conference call at 4:30 pm EDT/1:30 pm PDT. • We are forecasting 1Q’10 EPS of $0.42 versus $0.40 a year ago. In 1Q’09, the company’s results were impacted by several nonrecurring items, including $0.05 per share of combined earnings drag from a FERC fee refund ordered by state regulators and a reduction in open access transmission tariffs ordered by federal regulators; a $0.03 contribution from life insurance benefits; and a $0.02 increase in interest income primarily related to a federal income tax refund. Likely restraining results in the most recent quarter were temperatures, as measured by heating degree days, that were 16% and 2% warmer than a year ago in the Boise and Idaho Falls portions of the utility’s service territory, respectively. • We are raising our 12-18 month target price of $37.50 to $39.50 to reflect the company’s evident progress in capturing the benefits of the settlement agreement. The new target equates to 14.1x (previously 13.4x) the average of our 2010 and 2011 EPS estimates of $2.70 and $2.90, respectively. Over the past decade, IDACORP has traded at an average multiple of 16.2x price-to-year-forward EPS. We are maintaining our BUY rating for total return investors, including a 3.4% current yield. D.A. Davidson & Co. Two Centerpointe Drive, Suite 400 • Lake Oswego, Oregon 97035 • (503) 603-3000 • (800) 755-7848 • www.dadavidson.com Copyright D.A. Davidson & Co., 2010. All rights reserved. 2 Required Disclosures D.A. Davidson & Co. expects to receive, or intends to seek, compensation for investment banking services from this company in the next three months. D.A. Davidson & Co. is a full service investment firm that provides both brokerage and investment banking services. James L. Bellessa, Jr., CFA and Michael Bates, the research analysts principally responsible for the preparation of this report, will receive compensation that is based upon (among other factors) D.A. Davidson & Co.’s investment banking revenue. However, D.A. Davidson & Co.’s analysts are not directly compensated for involvement in specific investment banking transactions. We, James L. Bellessa, Jr., CFA and Michael Bates, attest that (i) all the views expressed in this research report accurately reflect our personal views about the common stock of the subject company, and (ii) no part of our compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed in this report. Ratings Information D.A. Davidson & Co. Ratings Buy Neutral Underperform Risk adjusted return potential azbycx Over 15% total return expected on a risk adjusted basis over next 12-18 months >0-15% return potential on a risk adjusted basis over next 12-18 months Likely to remain flat or lose value on a risk adjusted basis over next 12-18 months Distribution of Ratings (as of 3/31/10) Buy Hold Sell Corresponding Institutional Research Ratings Buy Neutral Underperform and Distribution 52% 40% 8% Corresponding Private Client Research Ratings Outperform Market Perform Underperform and Distribution 78% 22% 0% Distribution of Combined Ratings 55% 38% 7% Distribution of companies from whom D.A. Davidson & Co. has received compensation for investment banking services in last 12 mos. Institutional Coverage 7% 5% 6% Private Client Coverage 0% 0% 0% Distribution of Combined Investment Banking 6% 5% 6% D.A. Davidson & Co.’s Institutional Research Rating Scale (maintained since 7/9/02): Buy, Neutral, Underperform D.A. Davidson & Co. Two Centerpointe Drive, Suite 400 • Lake Oswego, Oregon 97035 • (503) 603-3000 • (800) 755-7848 • www.dadavidson.com Copyright D.A. Davidson & Co., 2010. All rights reserved. 3 Target prices are our Institutional Research Department’s evaluation of price potential over the next 12-18 months and 5 years, based upon our assessment of future earnings and cash flow, comparable company valuations, growth prospects and other financial criteria. Certain risks may impede achievement of these price targets including, but not limited to, broader market and macroeconomic fluctuations and unforeseen changes in the subject company’s fundamentals or business trends. Other Disclosures Information contained herein has been obtained by sources we consider reliable, but is not guaranteed and we are not soliciting any action based upon it. Any opinions expressed are based on our interpretation of data available to us at the time of the original publication of the report. These opinions are subject to change at any time without notice. Investors must bear in mind that inherent in investments are the risks of fluctuating prices and the uncertainties of dividends, rates of return and yield. Investors should also remember that past performance is not necessarily an indicator of future performance and D.A. Davidson & Co. makes no guarantee, express or implied, as to future performance. Investors should note this report was prepared by D.A. Davidson & Co.’s Institutional Research Department for distribution to D.A. Davidson & Co.’s institutional investor clients and assumes a certain level of investment sophistication on the part of the recipient. Readers, who are not institutional investors or other market professionals, should seek the advice of their individual investment advisor for an explanation of this report’s contents, and should always seek such advisor’s advice before making any investment decisions. Further information and elaboration will be furnished upon request.