PNM 1Q2016 Earnings Note

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Market Price (4/29/2016): $31.68/share; ST-Target: $42/share; NIV: $65/share

PNM: Gaining momentum and clarity

PNM’s 2016 GRC looks to be implemented by August 1, 2016, which would mean that the upper range of PNM’s guidance may be high by $0.08/share; implies upper limit to PNM’s 2016 AEPS guidance of about $1.68. PNM expects to provide new guidance during 2Q2016 earnings call. We have adjusted our estimates to reflect our best guess as to what PNM’s performance would be in 2016. Regardless, we look for CAGR in AEPS through 2020 of over 9%, which is more aggressive than PNM’s expectations; however, PNM appears to be conservative in estimating a reduction in 2019 rate base at PNM, which doesn’t seem plausible given net capex spending of +$120MM. Otherwise, PNM assumes CAGR in rate base of 5%-7% at PNM and 7%-9% at TNMP. Total capital spending is estimated to be over $1.7B (some $790MM after depreciation) through 2019. Although customer growth was up some 0.7% in 1Q2016 at PNM, but energy sales were down, indicating energy efficiency efforts are working and economic conditions are lackluster. But, employment growth picture seems to be brightening in New Mexico. Texas economic and demographic conditions remain robust as well.

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