KeyBanc Upgrades Avista To Sector Weight: How Wildfire Resiliency Plans Mitigate Risks

KeyBanc Capital Markets analyst Sophie Karp upgraded Avista Corporation AVA to Sector Weight from Underweight. 

Karp notes that Avista has made significant investments in its wildfire resiliency plan since 2021, which have mitigated its risk profile.

The analyst highlights that the company has no direct exposure to smoldering wildfire risks, but it may weigh on the shares in the near term.

The analyst expects the company to file its 2025 General Rate Case in 1Q24.

This will be AVA's opportunity to reset the rates to an adequate level given its current cost of capital and operating costs, notes the analyst.

Karp also expects AVA to explore the energy recovery mechanism, which has resulted in significant quarter-to-quarter volatility. 

The analyst notes that a constructive outcome that results in reduced volatility and regulatory lag will improve investor sentiment on the shares. 

On the negative side, the company's shares have been particularly pressured since the announcement of the Gray Fire in AVA's service territory last week, compounded by the developments in Maui, which once again brought wildfire risks into the spotlight.

The analyst cautions that the market will not cut AVA any slack for the current wildfire season, particularly given its heightened exposure in 2023.

The analyst lowered the FY23 EPS estimate to $2.30 from $2.33; the revenue estimates were reduced to $1.732 billion from $$1.780 billion.

For FY24, the analyst raised the EPS estimate to $2.45 from $2.43; the revenue forecasts decreased to $1.782 billion from $1.840 billion.

Price Action: AVA shares are trading higher by 2.81% to $33.33 on the last check Friday.