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Market Price (2/26/2016): $31.82/share; ST-Target: $42/share; NIV: $63/share
PNM: Continued accelerating growth and strength
We base our estimates on a mid-year (July or August) effective date for the 2016 GRC w/o much surprise. As expected, SNCRs and balanced draft facilities are in full operation at San Juan as of 2016. With full implementation of BART, new ownership structure at San Juan, new coal agreement, rate basing Palo Verde Unit 3 and conversion of Unit 2 leases to ownership have been implemented or is expected to be implemented on schedule. 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 1.5% in 2015 at PNM, but energy sales were down, indicating energy efficiency efforts are working and economic conditions are lackluster. But, we look for turnaround which would fuel higher than estimated AEPS growth.