Idacorp: Hold This Energy Company To Profit From Idaho's Growth (Technical Analysis)
Summary
- IDACORP provides energy to the majority of Idaho residents and spreads business to Oregon.
- Traditional local sectors get tech neighbours who profit from cheaper energy.
- Chart set-up still needs some time to resolve, so no need to rush anywhere.
pornpimon Ainkaew/iStock via Getty Images
Investment Thesis
IDACORP, Inc. (NYSE:IDA) is a $5.6 B market cap vertically integrated energy company encompassing generation, transmission, and distribution, providing through its subsidiary Idaho Power electricity to over 70% of the residents of Idaho and covering 7 cities in Oregon. Residential customers stand for 47% of Idaho Power's revenues, with industrial and commercial covering another 41%. In a way, this is a very niche and geographically non-diversified company but this could become a positive trait if understood as an under-covered and low-volatility investment. For the current analysis, I recommend "Hold" until the range trading resolves in a positive direction.
Tailwinds
The company's March presentation "Spring 2023 Investor Outreach" provides an interesting glance at the economy of Idaho, which seems to have a strong focus on sectors such as semiconductors and electrical equipment, agriculture, animal breeding, and food production, as well as those based on natural resources as wood and mining. The growth of jobs in the state has been positive for the last 5 years. By the same token, as mentioned in Q4 2022 earnings call, the unemployment in Idaho Power's service area during the fourth quarter was 2.3% compared to 3.5% at the national level.
Idaho economy snapshot (Spring 2023 Investor Outreach of IDACORP)
Readers must have noticed Micron Technology, Inc. (MU) on the slide above, which announced plans to invest ~$15 billion to construct a new memory manufacturing fab in Boise (Micron's HQs), to be co-located with the R&D center. This new fab is estimated to create over 17,000 new jobs, including approximately 2,000 direct Micron jobs, by 2030.
Given the regional perspectives of growth and investments, the company foresees a steady growth of its capital expenditure in order to meet the customer demand, on average $650 M per year for the next 5 years.
CapEx until 2027 (Spring 2023 Investor Outreach of IDACORP)
Idaho Power customer growth and transmission constraints outside Idaho Power's service area are driving the need for additional resources as well, which has led to filing in Oregon for bids for additional resources. After Oregon Energy Facilities Siting Council issued the final order to grant Idaho Power a site certificate to construct the line, the company expects to break ground in the summer of 2023.
One of the most important aspects of Idaho Power's energy mix is that it is strongly focused on renewable energy production. Nearly one-third of the generation comes from their own 17 hydroelectric plants. IDA still uses coal (roughly 20% of the generation) but the company plans to exit coal by 2028 and become 100% clean by 2045.
Clean energy mix (Spring 2023 Investor Outreach of IDACORP)
Shareholders benefit from the dividend yield that is at a lower end of the electricity providers industry (currently at 2.84%) but the expected annual growth of 5% of the annual dividend, as proposed by the management, provides some stability. The current payout ratio is around 60%, vs. the 5-year average ratio of 56.5%.
For the full 2022 year, IDACORP's earnings per diluted share were $5.11, an increase of more than 5% or $0.26 per share from last year. Both 2022 revenues and earnings were IDACORP's highest in its history, and the 2022 earnings results marked the 15th consecutive year in the growth of EPS.
Headwinds
Some of the most important but also energy sector-specific risk factors are environmental and climate-dependent, affecting both the physical state and productivity of the infrastructure (e.g. drought puts hydroelectric at risk), as well as the regulatory boundaries that affect the whole sector. Aidan Schaper wrote recently a well-researched article about these factors on Seeking Alpha, together with some fundamental dimensions that I agree with.
Institutional ownership
Readers of my other articles will recognize that I often approach this aspect of stock analysis. For the Q4 of 2022, a net positive number of 11 increased positions have taken place (new and closed netted to zero). The top three owners (Vanguard Group, BlackRock, and T. Rowe Price Investment Management) have made significant buys (146, 322, and 91 K shares respectively). However, the biggest increase of over 591 K shares was made by Victory Capital Management (VCTR), an ETF provider that I have owned now for several years and which I covered in November last year.
Technical Analysis
I will analyze IDACORP from a perspective of a number of technical analysis tools and show the screenshots on the monthly and weekly Heikin Ashi candles charts - each timeframe presented through two separate sets of indicators - which I will complement with a simplified daily Renko chart to reflect the short-term price momentum. The details of my methodology can be found in my previous articles as those on Apple or Salesforce.
The Long-Term Trend
For the long-term trend analysis, I use monthly charts. As we see in Chart 1, for nearly two years, the stock price has oscillated in the channel. The candles opened and closed between $98 and $111. Since October 2022, the bottom wicks of candles have risen, marking higher lows. The green Heikin Ashi candle of the current month of April opened above the Alligator's Teeth (red) line, which also served as a support line for the Lip (green) line. Now all the Alligator's lines are trending upwards. I have drawn a trend line from the top of April 2022, to mark a potential zone of breakout. If the previous years showed a significant markup, such a narrow channel could be considered a distribution zone. However, this does not seem to be the case and I think that the stock is rather in the accumulation zone. The monthly Awesome Oscillator (AO) bars have turned green again and the On Balance Volume (OBV) line has also steadily marked higher highs and higher lows for the last 12-15 months. The upper edge of Ichimoku Cloud has a solid level of around $104.
Chart 1 - Monthly (TradingView)
In Chart 2 we see that the 10-month Moving Average is slightly rising, and stays consistently over the 50-month MA since July 2021. The Composite Index Divergence Indicator (CIDI) line has just crossed its fast (green line) moving average and is close to crossing its slow (orange line) average. Both Moving Average Convergence Divergence (MACD) and Directional Movement Indicator (DMI) lines give signals of upcoming significant crossings. MACD is approaching its signal from below, while both lines are in positive territory. The Positive Direction Indicator (DI+) line is approaching the Negative Direction Indicator (DI-) from below as well. If both indicators accomplish their crossovers and there is more volume in the price crossing over $111-115, this could be the start of a new stable uptrend.
Chart 2 - Monthly (TradingView)
The Mid-Term Trend
For the mid-term trend analysis, I use weekly charts. The situation I see here is a slow recovery with some mixed signals. The Alligator's lines are now all trending upwards and the recent weekly candles have closed above my (arbitrary) trend line. We can appreciate that the red Ichimoku Cloud, which has held a strong S/R line around the level of $106, is now turning green. The AO bars have turned green and are reaching levels of mid-2022. But the OBV line has dropped in the last two years, even if it is slowly picking up now. This drop in the OBV line could be a reason for some concern.
Chart 1 - Weekly (TradingView)
For Chart 2, we can see that the 10-week MA is right now crossing the 50-week MA from below. Together with the MACD and its signal both crossing above the zero level, these two technical indicators are the most promising in this time frame. The CIDI line seems like it is going to top soon and make a downward turn. Nevertheless, its fast average seems to be crossing the slow one from below, which would be a positive signal if CIDI recovers in the upcoming weeks. The signal for concern that I see is the downward direction of DI+ which could presage an upcoming slowdown of the momentum.
Chart 2 - Weekly (TradingView)
Price Momentum
The Renko chart is presenting a situation close to January 2021 for the stock's momentum. The 10-box MA is crossing the 50-box MA from below and the MACD and its signal are both crossing the zero level. The direction of Renko boxes is upwards but the price needs to cross over a couple of resistance levels to establish a breakout.
Renko chart - Daily (TradingView)
Conclusion
IDACORP is not a sexy, big-headlines stock but it has a future-oriented clean energy strategy and operates in a state that records a growth of investments and employment, thus, also demands energy. For the shareholders, the steady dividend is an attractive trait and it can be a buy-and-hold position that will benefit from pullbacks. For the current analysis, I recommend "Hold" until the range trading resolves in a positive direction. I don't think I would go towards a Sell recommendation even if the price corrects below $90.
This article was written by
Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.
Recommended For You
Comments (6)
