IDA note 02 21 13.pdf

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Sidoti & Company, LLC © Copyright 2013
IDACORP Inc. (IDA-$46.91) NEUTRAL
Earnings Release; Company Update Target: $47
Michael Klein [phone] ([e-mail]) February 21, 2013

Price to Book Value 1.5x
Return on Equity (2014E) 8.9%
LT Debt to Total Capital 47%
5-Year EPS Growth Rate Projection 4%
52-Week Range (NYSE) 48-38
Russell 2000 904
Short Interest (Mil) 1.070
2011 2012 2013E 2014E
OLD NEW OLD NEW OLD NEW
Mar. $0.60 $0.50A $0.50 $0.51
June 0.42 0.71A 0.60 0.62
Sep. 1.15 1.84A 1.81 1.87
Dec. 0.18 0.30 0.33A 0.32 0.34

EPS (Cal.) $2.35 $3.34 $3.37 $3.23 $3.32

P/E (Cal.) 14.5x 14.1x

Note: 2011 exclude $1.01 benefit from tax accounting method change and ADITC reversal. 2011-2014E include $0.08 in annual stock-based compensation
expense. The Russell 2000 Index includes IDACORP. Sum of quarterly EPS may not equal full year total due to rounding and/or changes in share count. NC =
Not covered by Sidoti & Company, LLC.
Year 2005 2006 2007 2008 2009 2010 2011 2012 2013E 2014E
Rev.(Mil.) $842.9 $926.3 $879.4 $960.4 $1049.8 $1036.0 $1026.8 $1026.8 $1133.0 $1158.3
GAAP EPS $2.02 $2.33 $1.86 $2.17 $2.64 $2.95 $3.36 $3.37 $3.23 $3.32
Dividend $1.20 $1.20 $1.20 $1.20 $1.20 $1.20 $1.20 $1.37 $1.56 $1.71
Description: IDACORP Inc. (www.idacorpinc.com) is a holding company that operates through a regulated utility segment, Idaho Power
Company, and two unregulated arms: Ida-West Energy, which focuses on independent power production, and IDACORP Financial
Services (IFS), which manages tax-advantaged real estate investments. The utility serves 496,000 customers in Idaho and Oregon.
Headquarters are in Boise, ID.
4Q:12 EPS Beat Consensus; Management’s Plan To Use Less Than $5 Million In Tax Credits In
2013 Supports Improving Growth Story, But Valuation Keeps Us NEUTRAL; $47 Price Target
• IDA’s 4Q:12 EPS of $0.33 beat our projection and the consensus estimate of $0.30. Management initiated 2013 EPS
guidance of $3.20-$3.35. Our $3.23 estimate falls at the lower end of this range.
• A 12.5% increase in MWh sales to irrigation customers fueled the earnings beat, but was offset by a 5.8% decline in
sales to residential customers.
• Guidance reflects less than $5 million in accumulated deferred tax credits (ADITC) in 2013, which implies growth is
accelerating; Idaho Power should earn at least a 9.5% ROE in its Idaho jurisdiction.
• IDA posted 1.1% customer growth and a 2.6% increase in MWh sales in 2012; this gives us confidence that the local
economy is improving.
• However, updates to the 2011 Integrated Resource Plan (IRP) cite an average system load forecast over the next 20
years that is lower than what was predicted in 2011 as well as a slower economic recovery.
• We maintain our NEUTRAL rating; although our thesis reflects favorable growth trends, we think it will be at a
slower-than-expected rate. We argue the shares are close to fully valued, trading at 14.1x our 2014 EPS estimate.
• Our $47 price target is based on about 14x our 2014 EPS estimate of $3.32.
• Management will host a conference call today at 4:30pm ET. The dial-in number is 617-597-5395; ID: 77681359.

‰ Idaho Power will earn an Idaho jurisdictional ROE near 9.5% in 2013, by our model. Idaho Power has the ability to use
ADITC to maintain a 9.5% Idaho jurisdictional ROE. The ability to use these tax credits provides good visibility into reported
earnings through 2014; however, we place a premium on earnings that do not require these tax credits to maintain the
Action Date Px Rating PT
Initiation 9/21/12 42.7 Neutral 45
PT 11/2/12 44.8 47

IDACORP INC.
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baseline 9.5% ROE. We are encouraged that 2012 was the first year Idaho Power did not need to use tax credits due to
strong operating results (2011 was the result of a tax-methodology change) and that 2013 guidance implies the use of less
than $5 million worth of ADITC.
‰ We see signs that growth is returning to the Boise, ID region. The loss of Hoku Materials (OTC: HOKU, NC) as a
special-contract customer has weighed on the potential load and earnings growth, but we think other businesses moving to
the Boise region are helping to offset this loss. Sales to commercial customers increased 1.4% in 2011 and 1.3% in 2012,
and we expect continued growth as the local economy improves and business expands in the region.
‰ However, updates to the 2011 IRP suggest the economic pickup will come at a slower pace than originally expected.
Management thinks that the utility will not be in a peak-hour capacity short position until July 2016, while the average system
load forecast being prepared for the 2013 IRP is lower than projected in the 2011 report. Furthermore, the company cited a
slower-than-expected economic recovery is underway. There are some positives in the updated report, however, such as
the expectation for increased residential and commercial customers near the growth rate seen in the 2000-2004 time period
and a stronger forecast for irrigation sales.
‰ IDA reported 4Q:12 EPS of $0.33, higher than our $0.30 estimate. Higher base rates and a 12.5% improvement in
irrigation sales year over year spurred a 9% increase in total utility sales, which in turn fueled the 4Q:12 EPS beat. The
revenue increase was more pronounced as general business sales increased 16% in the quarter, offset by a 35% reduction
in off-system sales. Our 2013 EPS estimate of $3.23 is at the bottom end of management’s $3.20-$3.35 guidance range.
‰ We maintain our NEUTRAL rating and $47 price target. We think the local economy that Idaho Power operates in is
clearly improving, but our enthusiasm is tempered by the overall rate of expansion. We think the shares are close to being
fully valued, currently trading at 14.1x our 2014 EPS estimate. Our price target is based on about 14x our 2014 EPS
estimate of $3.32.

Key Risks Regulation Slowdown in local economy Interest rates

Exhibit 1. IDA Inc. Variance Table
4Q:12 A 4Q:12 E Variance % Change
($ in thousands)
Revenue 250,802 253,141 (2,339) -0.9%
Cost of Sales 95,309 77,897 17,412 22.4%
Gross Profit 155,493 175,244 (19,751) -11.3%
Operating Income 30,116 37,965 (7,849) -20.7%
Net Income 16,415 14,858 1,557 10.5%
Diluted EPS $0.33 $0.30 $0.03 0.0%
Source: Company reports; Sidoti & Company, LLC estimates
IDACORP INC.
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Table 1: IDACORP Income Statement
(in thousands, except where noted)
2011 Mar A Jun A Sep A Dec A 2012A Mar E Jun E Sep E Dec E 2013E Mar E Jun E Sep E Dec E 2014E
Total operating revenue 1,026,756 241,140 254,701 334,019 250,802 1,080,662 257,135 262,481 341,075 272,275 1,132,966 260,204 268,775 351,698 277,660 1,158,337
Purchased power 163,336 34,277 45,178 71,570 45,910 196,935 32,563 46,533 64,413 49,583 193,092 32,238 44,207 65,701 50,079 192,224
Fuel expense 131,542 32,751 21,285 55,978 49,399 159,413 33,079 21,924 57,098 52,857 164,957 33,409 22,143 58,240 53,385 167,177
Power cost adjustment 38,497 9,008 (3,211) (42,871) (24,016) (61,090) 9,008 (3,211) (47,158) (24,016) (65,377) 9,008 (3,211) (49,516) (24,016) (67,735)
Other O&M 338,640 78,515 86,005 89,968 94,545 349,033 79,299 90,305 91,767 103,055 364,427 82,471 92,111 93,603 105,116 373,301
Energy efficiency programs 37,663 4,477 8,084 8,410 6,329 27,300 4,522 8,327 8,662 6,645 28,156 4,703 8,410 8,749 6,712 28,573
Depreciation 119,789 30,542 29,879 31,607 31,913 123,941 32,232 32,554 32,880 33,209 130,875 33,541 33,876 34,215 34,557 136,189
Taxes other than income taxes 28,895 8,100 7,849 7,012 7,528 30,489 8,262 8,006 7,152 7,679 31,099 8,923 8,646 7,724 7,832 33,126
Other 13,042 1,127 832 1,002 9,078 12,039 800 800 800 800 3,200 800 800 800 800 3,200
Total Operating income- EBIT 155,352 42,343 58,800 111,343 30,116 242,602 57,371 57,243 125,460 42,463 282,538 55,112 61,793 132,182 43,195 292,281
EBITDA 275,141 72,885 88,679 142,950 62,029 366,543 89,603 89,798 158,340 75,672 413,413 88,653 95,669 166,397 77,752 428,470
Other income, net 30,105 6,593 6,571 2,928 10,550 26,642 2,290 2,263 1,870 2,214 8,638 2,227 2,184 1,769 2,139 8,319
Earnings (loss) of unconsolidated equity-method investments 798 1,419 (1,928) 1,304 (1,123) (328) - -
-
Total interest expense, net 71,526 17,205 17,436 19,401 19,827 73,869 21,303 19,986 19,879 19,707 80,875 19,926 20,393 20,296 20,116 80,730
Pre-tax income 114,729 33,150 46,007 96,174 19,716 195,047 38,358 39,520 107,452 24,970 210,301 37,413 43,584 113,655 25,218 219,870
Tax rate NM 25.1% 23.0% 4.1% 16.7% 13.4% 33.8% 23.8% 14.8% 35.0% 22.4% 31.0% 27.5% 15.2% 31.1% 22.2%
Income tax (benefit) expense (52,133) 8,333 10,569 3,910 3,301 26,113 12,960 9,413 15,906 8,738 47,017 11,591 11,998 17,325 7,835 48,749
Net Income 166,862 24,817 35,438 92,264 16,415 168,934 25,399 30,107 91,546 16,232 163,283 25,822 31,586 96,329 17,383 171,121
Adj. for (income) loss attributable to noncontrolling interests (169) 112 (137) (195) 47 (173) - -
Net income attributable to IDA 166,693 24,930 35,301 92,069 16,462 168,761 25,399 30,107 91,546 16,232 163,283 25,822 31,586 96,329 17,383 171,121
EPS, diluted 3.36 0.50 0.71 1.84 0.33 3.37 0.50 0.60 1.81 0.32 3.23 0.51 0.62 1.87 0.34 3.32
Dividend per share 1.20 0.33 0.33 0.33 0.38 1.37 0.38 0.38 0.38 0.42 1.56 0.42 0.42 0.42 0.46 1.71
Payout ratio 35.7% 40.6% 48.3% 51.6%
Shares outstanding, diluted 49,558 49,905 49,984 50,080 50,230 50,010 50,381 50,532 50,684 50,836 50,608 51,090 51,345 51,602 51,860 51,474
Margin Analysis
O&M as % of Sales 33.0% 32.6% 33.8% 26.9% 37.7% 32.3% 30.8% 34.4% 26.9% 37.8% 32.2% 31.7% 34.3% 26.6% 37.9% 32.2%
Operating Margin 15.1% 17.6% 23.1% 33.3% 12.0% 22.4% 22.3% 21.8% 36.8% 15.6% 24.9% 21.2% 23.0% 37.6% 15.6% 25.2%
EBITDA Margin 26.8% 30.2% 34.8% 42.8% 24.7% 33.9% 34.8% 34.2% 46.4% 27.8% 36.5% 34.1% 35.6% 47.3% 28.0% 37.0%
Pretax Margin 11.2% 13.7% 18.1% 28.8% 7.9% 18.0% 14.9% 15.1% 31.5% 9.2% 18.6% 14.4% 16.2% 32.3% 9.1% 19.0%
Net Margin 16.3% 10.3% 13.9% 27.6% 6.5% 15.6% 9.9% 11.5% 26.8% 6.0% 14.4% 9.9% 11.8% 27.4% 6.3% 14.8%
YoY Change
Revenue -0.9% -4.1% 8.4% 7.9% 8.7% 5.3% 6.6% 3.1% 2.1% 8.6% 4.8% 1.2% 2.4% 3.1% 2.0% 2.2%
O&M 15.2% 11.1% 0.6% 6.4% -3.5% 3.1% 1.0% 5.0% 2.0% 9.0% 4.4% 4.0% 2.0% 2.0% 2.0% 2.4%
Operating profit -21.8% -15.5% 71.4% 56.0% -7087.5% 56.2% 35.5% -2.6% 12.7% 41.0% 16.5% -3.9% 7.9% 5.4% 1.7% 3.4%
EBITDA -12.5% -8.4% 38.6% 40.8% 106.2% 33.2% 22.9% 1.3% 10.8% 22.0% 12.8% -1.1% 6.5% 5.1% 2.7% 3.6%
Pretax profit -19.1% -3.6% 165.6% 55.0% -349.3% 70.0% 15.7% -14.1% 11.7% 26.6% 7.8% -2.5% 10.3% 5.8% 1.0% 4.6%
Net income 17.1% -15.8% 68.9% -14.1% 18767.8% 1.2% 2.3% -15.0% -0.8% -1.1% -3.3% 1.7% 4.9% 5.2% 7.1% 4.8%
Pro forma EPS, diluted 13.9% -17.1% 67.3% -14.8% 18213.9% 0.3% 0.9% -15.6% -1.8% -2.6% -4.4% 0.3% 3.3% 3.4% 5.0% 3.0%
2011 EPS includes $56.9 million benefit from tax accounting method change, $6.8 million ADITC reversal and $18.1 million customer refund
Source: Company reports, Sidoti & Company, LLC estimates
Appendix
Required Disclosures

Sidoti & Company, LLC
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IDACORP Inc. (IDA-$46.91) NEUTRAL Target: $47 February 21, 2013

Key Risks Regulation Slowdown in local economy Interest rates

Valuation:
‰ We maintain our NEUTRAL rating and $47 price target. We think the local economy that Idaho Power operates in is
clearly improving, but our enthusiasm is tempered by the overall rate of expansion. We think the shares are close to being
fully valued, currently trading at 14.1x our 2014 EPS estimate. Our price target is based on about 14x our 2014 EPS
estimate of $3.32.

Required Disclosures

The Sidoti & Company, LLC (Sidoti) Equity Research rating system consists of BUY and NEUTRAL recommendations. BUY
suggests capital appreciation of at least 25% from initiation of coverage over the next 12 months, while NEUTRAL denotes that a
stock is not likely to provide similar gains over a 12-month period. As of 02/21/13, Sidoti provides research on 505 companies, of
which 348 (68%) are rated BUY and 157 (32%) are rated NEUTRAL. Of the BUYS, Sidoti has received investment banking
income from 3 companies (0.86%). Of the NEUTRALS, Sidoti has received investment banking income from 1 company (0.64%).
Of the NEUTRALS, 76 trade above our price targets. Of the NEUTRALS, 76 trade above our price targets. Of the NEUTRALS, 76
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Action Date Px Rating PT
Initiation 9/21/12 42.7 Neutral 45
PT 11/2/12 44.8 47

Appendix Continued

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