IDA research note 02-21-12.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.
February 21, 2012 IDA * – NYSE

Rating: Buy
Price: (2/21/12) $41.81
Price Targets: 12-18 month: $48.50
5-year: $56.00

Industry:
Utilities

James L. Bellessa, Jr., CFA
406.791.7230
[e-mail]

Michael Bates
Research Associate
406.791.7216
[e-mail]

4Q’11 Preview: Consideration to Ratepayers Should Cut Results in Half.
Utility and Hoku Materials File Settlement Agreement.

 IDACORP, Inc. is scheduled to report 4Q’11 earnings on Wednesday, February
22nd before the market opens. A conference call with management will be held
the same day at 4:30 pm ET/1:30 pm PT.
 We are forecasting 4Q EPS of $0.21, down from $0.41 a year ago and matching
the $0.21 consensus of three analysts. The main reason for the decline in EPS
from last year is the non-recurring $15 million ($0.24 per share) reserve for a
consideration which the utility will be paying ratepayers. That payment was
approved in December when Idaho regulators extended and modified a 2010
agreement, which set a 9.5% ROE floor (based on year-end shareholders’ equity)
and provided a mechanism for profit sharing with ratepayers in Idaho.
 Our full-year 2011 earnings estimate is $3.39 per share, which compares to
$2.95 in 2010, management’s guidance range of $3.35-$3.45, and the current
four-analyst consensus of $3.39. Year-over-year improved results include a $1.15
per share recognition of a tax benefit in 3Q’11 associated with the utility’s change
to a uniform capitalization tax method of accounting. This sizeable tax benefit will
be partially offset by a $0.36 per share reserve established in 3Q’11 for a
customer refund (due to the fact that 2011’s earnings were expected to exceed a
10.5% ROE in the utility’s Idaho territory, triggering a customer sharing
mechanism) and the aforementioned $0.24 per share consideration in 4Q’11.
 Quarter’s increase in margin was likely offset by higher expenses. Our
forecast calls for quarterly gross margin (utility revenues before sharing provision
less power supply expenses) of $167 million, up 3% from $162 million a year
earlier. It is our expectation that the effects of higher operating and maintenance
expenses and a ~1% increase in outstanding shares were enough to largely offset
the increase in margin on an EPS basis. Temperatures in 4Q’11, as measured by
heating degree days in the Boise and Pocatello area, were cooler than in 4Q’10
and may have moderately helped the quarterly comparison.
 Power contract dispute with Hoku Materials may be resolved. IDACORP’s
principal business, Idaho Power, has entered a stipulation with Hoku Materials
(HOKU - $0.81) regarding a power supply agreement for Hoku’s polysilicon
manufacturing plant in Pocatello. Due in part to a sluggish market for polysilicon
for photovoltaic solar panels, the ramp up of the plant’s output has been slowed.
The new agreement (which needs to be approved by the Idaho Public Utilities
Commission), would reduce the minimum monthly payments from $2.0 million to
$0.8 million for electrical service in excess of Hoku's actual power consumption,
among other changes. If the plant is successfully ramped up, Hoku could become
Idaho Power’s largest customer.
 Expected updates. Management will likely introduce its 2012 EPS guidance
range and make comments on the Hoku stipulation. We expect a regulatory
update for its Idaho and Oregon jurisdictions, including commentary on the
aforementioned rate agreement. We will also be listening for more information
about how and when the utility will pursue the addition of the Langley Gulch plant
into rate base (assuming the utility receives accommodative regulatory treatment
of its request, it should be able to begin recording earnings tied to the asset when
the facility is placed into service in mid-2012).
 Our 12-18 month price target of $48.50 equates to ~14.5x the average of our
2012 and 2013 EPS estimates of $3.25 and $3.45, respectively. We rate the
shares BUY.
D.A. Davidson & Co.
Two Centerpointe Drive, Suite 400  Lake Oswego, Oregon 97035  [phone]  [phone]  www.dadavidson.com
Copyright D.A. Davidson & Co., 2012. 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. Institutional Research 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 12/31/11) Buy Hold Sell
Corresponding Institutional Research Ratings Buy Neutral Underperform
and Distribution 59% 38% 3%
Corresponding Individual Investor Group Ratings Outperform Market Perform Underperform
and Distribution 73% 27% 0%
Distribution of Combined Ratings 60% 37% 3%
Distribution of companies from whom D.A. Davidson & Co. has received compensation for investment banking services in last 12 mos.
Institutional Coverage 3% 2% 0%
Individual Investor Group Coverage 0% 14% 0%
Distribution of Combined Investment Banking 3% 3% 0%

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  [phone]  [phone]  www.dadavidson.com
Copyright D.A. Davidson & Co., 2012. 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
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