IDA note 11 19 12.pdf.pdf

Sidoti & Company, LLC
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Required disclosures appear in the Appendix.
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Sidoti & Company, LLC © Copyright 2012
IDACORP Inc. (IDA-$41.13) NEUTRAL
Company Update Target: $47
Michael Klein [phone] ([e-mail]) November 19, 2012

Price to Book Value 1.3x
Return on Equity (2014E) 8.9%
LT Debt to Total Capital 47%
5-Year EPS Growth Rate Projection 4%
52-Week Range (NYSE) 46-38
Russell 2000 776
Short Interest (Mil) 1.301
2011 2012E 2013E 2014E
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 0.32 0.34

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

P/E (Cal.) 12.3x 12.7x 12.4x

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 2012E 2013E 2014E
Rev.(Mil.) $842.9 $926.3 $879.4 $960.4 $1049.8 $1036.0 $1026.8 $1083.0 $1135.2 $1159.7
GAAP EPS $2.02 $2.33 $1.86 $2.17 $2.64 $2.95 $3.36 $3.34 $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.
Think Growing Dividend And Improving Local Economy Are Investment Positives, But
Valuation Keeps Us NEUTRAL; Maintain $47 Price Target
• Our conversation with management at last week’s EEI conference focused on the local economy, new businesses
moving to Boise and the ability to accelerate the use of accumulated deferred investment tax credits (ADITC).
• We think the Boise region is seeing a pickup in several economic trends that will spur load growth for IDA from new
residential customers moving to the area, as well as businesses that are currently exploring their possibilities.
• Boise lost about 100-150 jobs when Hoku Materials (NASDAQ: HOKU, NC) stopped construction on a facility there.
However, the addition of several less talked about companies will contribute five times the number of jobs.
• Annual load growth is expected to rise to 1.0%-1.3% by 2014 from less than 1% in 2012, according to management.
We think the economic pickup is in the early stages and contend the 2013 Integrated Resource Plan (IRP) could
serve as a catalyst.
• The ability to grow earnings and not use the ADITC to maintain a 9.5% Idaho ROE is key to our investment thesis.
• We think management does not plan to file a rate case before 2014, and management thinks it would likely be
awarded a sub-10% ROE if it filed a rate case today. This places more emphasis on load growth and cost control.
• We maintain our NEUTRAL rating and $47 price target, which is based on about 14x our 2014 EPS estimate of $3.32.

‰ We think next year’s IRP could serve as a catalyst to IDA shares. With no substantial investment projects on the near-
term horizon to grow the rate base, IDA’s earnings will be fueled primarily by improving load growth and cost control. Boise
boasts a 6.9% unemployment rate and housing market that is seeing a pickup in permits and prices. Furthermore, several
businesses continue to make investments in the region. Although the loss of Hoku and the expected 100-150 jobs the facility
Action Date Px Rating PT
Initiation 9/21/12 42.7 Neutral 45
PT 11/2/12 44.8 47

IDACORP INC.
Sidoti & Company, LLC
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was intended to create made headlines, several other less advertised businesses continue to move to Boise. These
companies will significantly contribute to jobs growth and should benefit earnings, in our view. The 2013 IRP could identify a
faster-than-expected pickup in the economy and/or the need for additional generating opportunities, which we would view as
positives for IDA.
‰ In our view, IDA will not file a rate case before 2014 at the earliest. IDA currently can keep all earnings between a 9.5%
and 10% ROE before customer sharing kicks in. Management thinks it would likely be awarded an allowed ROE of less than
10% if it filed a rate case now, so we think the company would like to stay out of filing as long as possible. With new rates
recently implemented in January 2012 and again in July for the Langly Gulch plant, we see no other significant costs
accumulating, which turns our focus back to the local economy and load growth.
‰ IDA has never had to use the ADITC to maintain a year-end 9.5% ROE. In previous years, IDA has used tax credits early
in the year as management thought the earned ROE would be less than 9.5%, but reversed this expectation as the year
progressed and earnings improved. However, 2012 is the first year of an ADITC reversal due to an operating earnings
driver—strong sales to irrigation customers in 2Q:12—whereas previous reversals have been associated with events such as
a tax methodology change (2011). We note 2Q:12 irrigation sales were among the company’s strongest to this customer
class, something we think bears watching.
‰ Management’s commitment to growing the dividend is an investment positive, in our view. The dividend had been
held flat since 2004 before two increases in 2012. On a full-year basis, the annual dividend rose 27% from 2011, and
management intends to recommend to the board an increase of at least 10% next September. Our estimates imply a
dividend payout ratio of 48% in 2013 and 52% in 2014. Management targets a 50%-60% payout.
‰ We maintain our NEUTRAL rating and $47 target. We like management’s focus on growing the dividend and signs of an
improving local economy. However, we think an economic pickup is in its early stages, and we look for continued signs of
improvement and the 2013 IRP for an updated outlook on the company’s service territory. Our target is based on about 14x
our 2014 EPS estimate of $3.32.

Key Risks Regulation A slowdown in local economy Interest rates

IDACORP INC.
Sidoti & Company, LLC
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Table 1: IDACORP Income Statement
(in thousands, except where noted)
Mar Jun Sep Dec 2011 Mar A Jun A Sep A Dec E 2012E Mar E Jun E Sep E Dec E 2013E 2014E
Total operating revenue 251,494 234,983 309,630 230,649 1,026,756 241,140 254,701 334,019 253,141 1,083,001 257,135 262,481 341,075 274,485 1,135,177 1,159,743
Purchased power 25,094 36,423 66,141 35,678 163,336 34,277 45,178 71,570 36,748 187,773 32,563 46,533 64,413 39,688 183,198 182,231
Fuel expense 29,902 19,704 41,195 40,741 131,542 32,751 21,285 55,978 41,148 151,162 33,079 21,924 57,098 44,029 156,128 158,261
Power cost adjustment 31,306 15,501 (10,189) 1,879 38,497 9,008 (3,211) (42,871) 1,917 (35,157) 9,008 (3,211) (47,158) 1,917 (39,445) (41,802)
Other O&M 70,661 85,472 84,562 97,945 338,640 78,515 86,005 89,968 88,151 342,639 79,299 90,305 91,767 96,966 358,337 367,090
Energy efficiency programs 6,711 5,796 18,504 6,652 37,663 4,477 8,084 8,410 6,785 27,756 4,522 8,327 8,662 7,124 28,635 29,057
Depreciation 29,464 29,693 30,115 30,517 119,789 30,542 29,879 31,607 31,923 123,951 32,242 32,565 32,890 33,219 130,917 136,232
Taxes other than income taxes 7,211 7,182 7,302 7,200 28,895 8,100 7,849 7,012 7,704 30,665 8,262 8,006 7,152 7,858 31,278 33,230
Other 1,054 913 607 1,572 4,146 1,127 832 1,002 800 3,761 800 800 800 800 3,200 3,200
Total Operating income- EBIT 50,091 34,299 71,393 8,465 164,248 42,343 58,800 111,343 37,965 250,451 57,361 57,233 125,450 42,884 282,928 292,244
EBITDA 79,555 63,992 101,508 38,982 284,037 72,885 88,679 142,950 69,888 374,402 89,603 89,798 158,340 76,104 413,845 428,477
Other income, net 4,538 5,041 6,010 5,620 21,209 6,593 6,571 2,928 2,342 18,434 2,290 2,263 1,870 2,203 8,627 8,312
Earnings (loss) of unconsolidated equity-method investments (1,294) (4,447) 2,085 4,454 798 1,419 (1,928) 1,304 795 - -
Total interest expense, net 18,959 17,568 17,446 17,553 71,526 17,205 17,436 19,401 19,229 73,271 21,303 19,986 19,879 19,707 80,875 80,730
Pre-tax income 34,376 17,325 62,042 986 114,729 33,150 46,007 96,174 21,078 196,409 38,348 39,510 107,442 25,380 210,680 219,826
Tax rate 14.2% NM NM NM NM 25.1% 23.0% 4.1% 29.5% 14.8% 33.8% 23.8% 14.8% 35.1% 22.4% 22.2%
Income tax (benefit) expense 4,888 (3,652) (45,372) (7,997) (52,133) 8,333 10,569 3,910 6,221 29,033 12,956 9,409 15,902 8,898 47,165 48,732
Net Income 29,488 20,977 107,414 8,983 166,862 24,817 35,438 92,264 14,858 167,377 25,392 30,101 91,539 16,482 163,515 171,094
Adj. for (income) loss attributable to noncontrolling interests 252 (76) (347) 2 (169) 112 (137) (195) (220) - -
Net income attributable to IDA 29,740 20,901 107,067 8,985 166,693 24,930 35,301 92,069 14,858 167,157 25,392 30,101 91,539 16,482 163,515 171,094
EPS, diluted 0.60 0.42 2.16 0.18 3.36 0.50 0.71 1.84 0.30 3.34 0.50 0.60 1.81 0.32 3.23 3.32
Dividend per share 0.30 0.30 0.30 0.30 1.20 0.33 0.33 0.33 0.38 1.37 0.38 0.38 0.38 0.42 1.56 1.71
Payout ratio 35.7% 41.0% 48.2% 51.6%
Shares outstanding, basic 49,290 49,420 49,520 49,598 49,457 49,860 49,927 49,966
Shares outstanding, diluted 49,356 49,516 49,622 49,734 49,558 49,905 49,984 50,080 50,230 50,050 50,381 50,532 50,684 50,836 50,608 51,474
Margin Analysis
O&M as % of Sales 28.1% 36.4% 27.3% 42.5% 33.0% 32.6% 33.8% 26.9% 34.8% 31.6% 30.8% 34.4% 26.9% 35.3% 31.6% 31.7%
Operating Margin 19.9% 14.6% 23.1% 3.7% 16.0% 17.6% 23.1% 33.3% 15.0% 23.1% 22.3% 21.8% 36.8% 15.6% 24.9% 25.2%
EBITDA Margin 31.6% 27.2% 32.8% 16.9% 27.7% 30.2% 34.8% 42.8% 27.6% 34.6% 34.8% 34.2% 46.4% 27.7% 36.5% 36.9%
Pretax Margin 13.7% 7.4% 20.0% 0.4% 11.2% 13.7% 18.1% 28.8% 8.3% 18.1% 14.9% 15.1% 31.5% 9.2% 18.6% 19.0%
Net Margin 11.7% 8.9% 34.7% 3.9% 16.3% 10.3% 13.9% 27.6% 5.9% 15.5% 9.9% 11.5% 26.8% 6.0% 14.4% 14.8%
YoY Change
Revenue -0.6% -2.8% 0.1% -0.6% -0.9% -4.1% 8.4% 7.9% 9.8% 5.5% 6.6% 3.1% 2.1% 8.4% 4.8% 2.2%
O&M -2.0% 13.8% 17.5% 31.0% 15.2% 11.1% 0.6% 6.4% -10.0% 1.2% 1.0% 5.0% 2.0% 10.0% 4.6% 2.4%
Operating profit 47.1% -6.3% -19.8% -78.3% -17.3% -15.5% 71.4% 56.0% 348.5% 52.5% 35.5% -2.7% 12.7% 13.0% 13.0% 3.3%
EBITDA 27.0% -2.0% -14.1% -43.1% -9.7% -8.4% 38.6% 40.8% 79.3% 31.8% 22.9% 1.3% 10.8% 8.9% 10.5% 3.5%
Pretax profit 100.3% -23.4% -19.7% -96.0% -19.1% -3.6% 165.6% 55.0% 2037.8% 71.2% 15.7% -14.1% 11.7% 20.4% 7.3% 4.3%
Net income 86.0% -46.5% 60.0% -55.6% 17.1% -15.8% 68.9% -14.1% 65.4% 0.3% 2.3% -15.1% -0.8% 10.9% -2.3% 4.6%
Pro forma EPS, diluted 79.6% -48.3% 55.1% -56.4% 13.9% -17.1% 67.3% -14.8% 63.7% -0.7% 0.9% -15.7% -1.8% 9.6% -3.3% 2.9%
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-$41.13) NEUTRAL Target: $47 November 19, 2012

Key Risks Regulation A slowdown in local economy Interest rates

Valuation:
‰ We maintain our NEUTRAL rating and $47 target. We like management’s focus on growing the dividend and signs of
an improving local economy. However, we think an economic pickup is in its early stages, and we look for continued signs
of improvement and the 2013 IRP for an updated outlook on the company’s service territory. Our 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 11/19/12, Sidoti provides research on 508 companies, of
which 371 (73%) are rated BUY and 137 (27%) are rated NEUTRAL. Of the BUYS, Sidoti has received investment banking
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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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