In July 2017, Avista Corp (AVA) — a new holding in our aggressive portfolio — accepted an all-cash takeover offer of $53 per share from Canadian utility Hydro One (Toronto: H); then followed basically a year and a half of futility, recalls Roger Conrad, editor of Conrad's Utility Investor.

The parties eventually broke off their deal in January 2019, when regulators in Idaho and Washington rejected it due to concerns about then Ontario premier Doug Ford. Avista shares overnight dropped from low-50s to the low-30s and have been attempting to fight their way back ever since.

The primary hurdle: Investor concerns about regulation in Alaska, Idaho, Montana, Oregon and especially Washington (60 percent of rate base), where the needs of the utility’s eastern state franchise are a world away from coastal politicians.

Little by little, however, the company has repaired its once-frayed relations with regulators, winning approval for numerous rate mechanisms to ensure faster cost recovery. As a result, rate lag is a diminishing concern, as recently noted by Moody’s in affirming Avista’s Baa2 credit rating with a stable outlook.

The latest example is Oregon’s approval of a settlement between the utility and the Public Utility Commission staff, consumer groups and the Sierra Club, which will raise energy rates $7.2 million versus an initial request of $11 million.

That follows the December 2022 deal in Washington, which locked in a solid 7.02 percent return on debt and equity and two years of electric and gas rate increases.

Increasingly favorable regulator relations strongly back management’s 2023 earnings guidance of $2.27 to $2.47 per share, recently affirmed following a 43.8 percent boost in seasonally weak Q2 results. And those numbers as well as long-term growth guidance of 4 to 6 percent are also underpinned by the robust customer growth of the utility’s service territory.

Wall Street’s view on Avista has been consistently bearish since the failure of the Hydro One merger. Bloomberg Intelligence reports just one buy recommendation versus four sells of research houses it tracks. But this also means very low investor expectations that won’t be hard to beat, especially with management speeding up dividend growth this year. Buy at $44 or lower.

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