Rising Energy Demand And Infrastructure Investments Will Fuel Future Opportunities

Key Takeaways

• Strong customer growth and record energy demand in Idaho Power's area are expected to drive significant revenue and earnings increases.
  
• Planned large-scale energy projects and regulatory assets are likely to boost capacity, earnings, and future revenue without major rate impacts.
  
• Regulatory delays and rising costs could pressure profitability, while financing growth might dilute earnings, impacting shareholder returns and future earnings potential.

Catalysts

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

• Strong economic expansion and customer growth in Idaho Power's service area, including significant increases in residential, commercial, and industrial segments, is likely to drive substantial revenue growth.
  
• Record-breaking demand for energy, driven by factors such as hot weather and population growth, could enhance revenue opportunities and support increased earnings.
  
• Incremental large-scale energy projects and infrastructure investments, including solar, wind, and battery storage projects, are expected to expand capacity and reduce power supply costs, which could positively impact earnings.
  
• The prospect of adding large industrial customers, with specific agreements on cost contributions, positions IDACORP for further revenue growth without significantly impacting existing customers' rates.
  
• Potential for regulatory asset rate base growth of nearly 17% CAGR supports a strong earnings growth trajectory, driven by large capital expenditures and successful regulatory rate case outcomes.

IDACORP Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming IDACORP's revenue will grow by 7.1% annually over the next 3 years.
• Analysts assume that profit margins will increase from 15.4% today to 18.2% in 3 years time.
• Analysts expect earnings to reach $411.4 million (and earnings per share of $6.8) by about December 2027, up from $282.6 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 20.5x on those 2027 earnings, down from 21.1x today. This future PE is lower than the current PE for the US Electric Utilities industry at 20.7x.
• Analysts expect the number of shares outstanding to grow by 4.33% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 5.92%, as per the Simply Wall St company report.

IDACORP Future Earnings Per Share Growth

Risks

• Regulatory lag in recovering the significant capital expenditures required for infrastructure and new projects could pressure net margins and earnings as expenses are incurred before revenue is realized.
  
• The need for frequent rate cases to manage revenue needs might create uncertainty and investor apprehension, impacting revenue stability and potentially earnings.
  
• Increased operating expenses, including pension-related and wildfire mitigation costs, could weigh on net margins if not fully recovered in future rate cases, affecting overall profitability.
  
• The substantial planned issuance of equity and debt to finance growth could dilute earnings per share, potentially impacting shareholder returns and earnings growth projections.
  
• Regulatory challenges and public scrutiny regarding rate increases needed to support infrastructure investments could restrict revenue potential and affect future earnings.

Valuation

• The analysts have a consensus price target of $118.38 for IDACORP based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $129.0, and the most bearish reporting a price target of just $100.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be $2.3 billion, earnings will come to $411.4 million, and it would be trading on a PE ratio of 20.5x, assuming you use a discount rate of 5.9%.
• Given the current share price of $112.12, the analyst's price target of $118.38 is 5.3% 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.