Boardman To Hemingway Project Set To Expand Future Energy Transmission Capacity

Key Takeaways

• Strong customer growth and infrastructure upgrades could enhance revenues and support long-term earnings amidst rising energy demand.
  
• Strategic regulatory filings and infrastructure projects aim to secure increased revenue recovery, aiding transmission capacity and future earnings growth.
  
• Regulatory and execution risks combined with high CapEx needs could affect IDACORP's margins, earnings, and revenue growth while posing financing challenges.

Catalysts

Engages in the generation, transmission, distribution, purchase, and sale of electric energy in the United States.

• IDACORP's expectation of strong customer growth and robust local economic performance could lead to increased revenues as the number of customers increases and energy demand rises.
  
• The company is initiating major infrastructure projects, including upgrades for new large load customers and renewable energy projects. This could result in higher future revenues and expand the rate base, aiding long-term earnings growth.
  
• Planned regulatory filings, including a full general rate case in Idaho in 2025, aim to secure additional revenue recovery and return on investment, which could positively impact net margins.
  
• With potential large load growth and ongoing discussions with new projects, IDACORP is preparing for significant long-term increases in energy demand, which could drive future revenue growth.
  
• Continuation of infrastructure projects like the Boardman to Hemingway project and SWIP North could enhance the company's transmission capabilities and support future earnings by facilitating higher electricity sales and meeting growing demand.

IDACORP Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming IDACORP's revenue will grow by 7.6% annually over the next 3 years.
• Analysts assume that profit margins will increase from 15.8% today to 18.4% in 3 years time.
• Analysts expect earnings to reach $418.9 million (and earnings per share of $6.88) by about April 2028, up from $289.2 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 23.4x on those 2028 earnings, up from 22.0x today. This future PE is greater than the current PE for the US Electric Utilities industry at 20.3x.
• Analysts expect the number of shares outstanding to grow by 6.47% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.21%, as per the Simply Wall St company report.

IDACORP Future Earnings Per Share Growth

Risks

• There is regulatory risk associated with potential delays or unfavorable outcomes in future rate cases, which could impact IDACORP's ability to recover costs and finance operations, thereby affecting net margins and earnings.
  
• Increasing capital expenditure needs, projected at $5.6 billion over the next 5 years, necessitate significant external financing, which may lead to higher interest expenses and reliance on equity issuance, potentially diluting earnings per share.
  
• IDACORP faces execution risks with its ambitious infrastructure projects and RFP outcomes, including potential delays in large-scale transmission projects like Boardman to Hemingway, which could affect revenue and net operating margins if capacity isn't met on time.
  
• The company's increasing load projections depend heavily on adding large-scale commercial customers, which introduces market risk if those projects don't materialize as expected, potentially leading to slower revenue growth.
  
• Credit rating agencies have expressed concerns about maintaining financial metrics, particularly cash flow to debt ratios, amidst regulatory lag and high CapEx, which could lead to higher borrowing costs and impact net income.

Valuation

• The analysts have a consensus price target of $126.125 for IDACORP based on their expectations of its future earnings growth, profit margins and other risk factors.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $2.3 billion, earnings will come to $418.9 million, and it would be trading on a PE ratio of 23.4x, assuming you use a discount rate of 6.2%.
• Given the current share price of $117.98, the analyst price target of $126.12 is 6.5% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.