Chobani, Tractor Supply And Battery Projects Will Shape Grid

Key Takeaways

• Customer growth and large investments will boost retail sales and revenue, while system investments aim to support future load growth.
  
• Significant capital expenditure could double the rate base, enhancing earnings through regulatory decisions and large customer contracts.
  
• Heavy reliance on regulatory approvals and external financing, alongside potential tariffs and wildfire liabilities, poses risks to net margins and earnings.

Catalysts

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

• IDACORP is experiencing continued customer growth, particularly due to significant investments from large customers like Chobani and Tractor Supply Company, which are expanding in Idaho Power's service area. This expansion is expected to drive an increase in retail sales growth, positively impacting future revenue.
  
• The company is planning significant system investments, including an 80-megawatt battery project and a 150-megawatt storage agreement, as well as multiple transmission projects such as the Boardman to Hemingway project. These investments are crucial to meet projected load growth and should contribute to higher earnings as these projects come online.
  
• IDACORP has a substantial capital expenditure plan, with $5.6 billion expected to be spent over the next five years. This is projected to double the company's rate base, which could lead to increased earnings as these projects are completed and integrated into the rate base.
  
• The anticipated growth in the infrastructure will contribute to a doubling of the rate base over five years. Successful regulatory outcomes and new contract negotiations for large load customers could further enhance earnings per share by reducing regulatory lag and increasing capital efficiency.
  
• The company is in discussions for regulatory changes to reduce regulatory lag and improve return on equity, which could positively affect future net margins and earnings, especially as capital investments grow and new rate cases are filed to recover costs.

IDACORP Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming IDACORP's revenue will grow by 8.3% annually over the next 3 years.
• Analysts assume that profit margins will increase from 16.6% today to 18.8% in 3 years time.
• Analysts expect earnings to reach $431.2 million (and earnings per share of $6.99) by about May 2028, up from $300.6 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 22.9x on those 2028 earnings, up from 21.0x today. This future PE is greater than the current PE for the US Electric Utilities industry at 21.1x.
• Analysts expect the number of shares outstanding to grow by 6.56% 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

• The company's heavy reliance on regulatory mechanisms and rate cases to recover substantial capital investments introduces risks related to regulatory approvals and potential delays, which could impact earnings and net margins.
  
• The necessity to issue $1.4 billion in equity and $2.2 billion in debt to finance capital expenditure plans indicates reliance on external financing, which could affect net margins and earnings if market conditions worsen or if financing becomes more expensive.
  
• Potential tariffs on battery storage assets raise concerns about increased costs that could affect the company's capital plans and margins if alternative sources are not found, potentially impacting net profitability.
  
• Wildfire-related liabilities and the effectiveness of the new wildfire legislation remain uncertain, posing risks that could impact net margins and earnings, particularly if the company faces significant claims or mitigation expenses.
  
• The need for large capital expenditures and maintaining a balanced capital structure suggest that operational cash flow is insufficient, which could pressure cash reserves and net margins if anticipated revenue growth is slower than expected.

Valuation

• The analysts have a consensus price target of $126.875 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 $431.2 million, and it would be trading on a PE ratio of 22.9x, assuming you use a discount rate of 6.2%.
  
• Given the current share price of $116.67, the analyst price target of $126.88 is 8.0% 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.