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Home My WebLink AboutCOC IDA research note 05-01-08.pdf Institutional Equity Research RESEARCH NOTE IDACORP, INC. May 1, 2008 IDA – NYSE Rating: NEUTRAL Price: (5/1/08) $32.56 Price Targets: 12-18 month: $35 5-year: $41 Industry: Utilities James L. Bellessa, Jr., CFA 406.791.7230 jbellessa@dadco.com Bryan H. Nicholls Research Associate 406.791.7240 bnicholls@dadco.com 1Q’08 Earnings Preview: EPS Improvement Expected. • IDACORP, Inc. is scheduled to report 1Q’08 earnings on Thursday, May 8th, before the market opens. A conference call with management will be held on the same day at 4:30 PM EDT/1:30 PM PDT. • We are looking for 1Q’08 EPS of $0.60 versus $0.56 per share in the same quarter a year ago. The consensus estimate of five analysts is $0.61 per share. • Utility trifecta should provide nice earnings contributions. We are estimating 1Q’08 utility segment EPS of $0.58 versus $0.53 a year ago. We believe the quarterly improvement in utility results will be attributed to a 1.8% increase in utility customers in the first three months of 2008, colder weather, and a moderate benefit from a general rate increase. • Weather a positive for volumes, quarter catches tail end of rate increase. Temperatures during 1Q’08 were approximately 3% colder than normal and 12% colder than last year from a heating degree day perspective. Additionally, utility results should benefit from a general rate increase in Idaho that became effective March 1, 2008. Overall annual electric rates increased 5.2%, or $32.1 million. • Will utility follow in Avista Corp.’s footsteps? The cold temperatures could have also negatively impacted results during the quarter as colder than normal temperatures more than likely delayed the annual spring runoff. Runoff delays can reduce the quarter’s relatively cheap hydropower generation, decrease off- system opportunities, and force the utility to use or purchase more expensive thermal generated resources. In its 1Q’08 earnings release, Avista Corp. (AVA –BUY - $20.49) reported that the quarter was negatively impacted by colder than normal weather and lower than expected runoff. • Still below normal, but hydro condition outlook has improved. Streamflow forecasts made by the Northwest River Forecast Center on 4/17/08 suggest April- July inflows into the Brownlee Reservoir will be 79% of normal. Although below normal, this year’s hydro outlook compares favorably with very poor hydro conditions last year, when actual inflows were only 39% of normal. We continue to believe that 2008 hydro-generation conditions for Idaho Power will be below normal due to the drought-impacted region’s subpar soil moisture and below normal reservoir levels. • We currently rate the shares NEUTRAL, with a target price of $35, or 15.8x the average of our 2008 and 2009 EPS estimates of $2.13 and $2.29, respectively. Please refer to pages 2-3 of this report for detailed disclosure and certification information. 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., 2008. 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 Bryan H. Nicholls, 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 Bryan H. Nicholls, 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 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 3/31/08) Buy Hold Sell Corresponding Institutional Research Ratings Buy Neutral Underperform and Distribution 44% 52% 4% Corresponding Private Client Research Ratings Outperform Market Perform Underperform and Distribution 83% 17% 0% Distribution of Combined Ratings 48% 48% 4% Distribution of companies from whom D.A. Davidson & Co. has received compensation for investment banking services in last 12 mos. Institutional Coverage 4% 4% 0% Private Client Coverage 0% 0% 0% Distribution of Combined Investment Banking 4% 4% 0% D.A. Davidson & Co. 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., 2008. 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.