Wolfe Research reiterates Peerperform on Pinnacle West stock By Investing.com

Wolfe Research reiterated a Peerperform rating on Pinnacle West Capital with a fair value range of $102 to $108, while noting the stock trades at $103.71 near its 52-week high of $104.92. The firm sees the Arizona rate case and Desert Sun Phase 2 as supportive, with a year-end 2026 test year, a +/-40 bps deadband, and potential to earn within 50 bps of lag by 2029. Separately, Pinnacle West posted Q4 2025 EPS of $0.13 versus $0.0335 expected and full-year EPS of $5.05, and raised its quarterly dividend to $0.91 per share.

Analysis

PNW is becoming a cleaner regulated utility story, but the real equity upside is less about near-term earnings and more about de-risking the capital plan. A formulaic rate mechanism plus customer-funded infrastructure should shrink the equity check needed for growth, which matters because utility multiples are often capped when dilution risk stays high. If management can lock in the next five-year plan with a visible path to low-double-digit EPS compounding, the stock can re-rate from a “bond proxy with project risk” toward a higher-quality growth utility.

The second-order winner is Arizona load growth itself: large customers that pre-fund transmission and generation are effectively underwriting incremental returns, which should improve project economics and reduce stranded-capital risk. That also puts pressure on smaller regional peers without similar demand-backed funding structures, because they may need to finance growth more heavily at a time when investors are punishing balance-sheet expansion. The subtle bearish implication is for capital-intense utility developers relying on equity issuance; PNW’s model could become a benchmark that raises the bar for everyone else.

The main risks are procedural, not operational. Over the next 3-9 months, the rate-case timeline creates a binary window where any dilution of staff support, tougher judge recommendations, or election-driven commission turnover could compress the stock back toward its fair value range. Over 12-24 months, the issue is execution: if Desert Sun slips or capex grows faster than subscription-funded prepayments, the market will reprice the “self-funding” narrative quickly.

Consensus may be underestimating how much of the current valuation is already pricing the steady-state outcome. At ~3.5% yield and near highs, the stock is not cheap for a utility unless investors believe the equity ratio can come down materially and safely. That creates a favorable setup only if the next catalyst confirms funding efficiency; otherwise, the upside is likely limited and the market will start treating PNW as fully valued.

Key Decisions for Investors

• Maintain a tactical long PNW only into the regulatory milestones over the next 3-6 months; upside is attractive if the commission path validates lower equity needs, but downside is limited if the filing sequence turns adverse.
• Sell upside calls on PNW against a core long position into the expected Q3 ALJ recommendation; implied volatility should rise into the decision window, and the stock appears closer to fair value than to a deep discount.
• Pair trade: long PNW / short a more capital-dependent regulated utility with a weaker load-growth or funding profile over 6-12 months; PNW’s subscription-funded capex structure should translate into superior equity efficiency.
• Use any post-decision selloff below the low end of the stated fair value range as a staged entry point; if the rate outcome confirms the framework, the stock can re-rate, but entry should be risk-managed around political/regulatory noise.
• Avoid chasing the name above the recent high until management shows a credible 5-year EPS trajectory; the market is likely to punish any hint that growth requires more equity than expected.