AVISTA CORP (AVA) stock intrinsic value fair value estimate & owner earnings analysis

WHAT THE BUSINESS IS. Avista is a regulated electric and natural gas utility serving eastern Washington, northern Idaho and parts of Oregon, plus Alaska Electric Light and Power in Juneau. It earns a return set by the Washington Utilities and Transportation Commission, the Idaho Public Utilities Commission and the Oregon and Alaska commissions on the plant it has invested in. Net income has been steady: $147M (2021), $155M (2022), $171M (2023), $180M (2024) and $193M (2025), and the first half of 2026 ($127M against $93M a year earlier) shows the new Washington rates and the January 2026 exit from the Colstrip coal plant helping. HOW WE MEASURED EARNING POWER. Avista's reported cash flow swings a lot because of regulatory timing. When power or gas costs run above what rates collect, the extra is booked as an amount customers owe and is collected later. In 2022 that, plus $141M of collateral posted on energy hedges, pulled operating cash flow down to $124M; it bounced back to $447M in 2023 as the money came back. We treat these deferrals and the decoupling mechanism like working capital and remove them. Avista spends far more on plant than its depreciation ($570M against $289M in 2025). Strictly mechanical owner earnings, which charge nearly all of that spending as upkeep, have been slightly negative every year. That reading is misleading for a regulated utility. Every approved dollar of plant goes into the rate base and earns an authorized return (Washington's current order allows a 9.8% return on equity and 7.32% overall), and depreciation is what customers pay to return the cost of the plant. So we use depreciation as the real cost of keeping the business whole. We give no value to the spending above that, because it is paid for with new debt and new shares and earns roughly what that capital costs. On that basis the cash the business produced before paying lenders was $2.11 to $5.38 per share a year over 2016 to 2025. We set the level at the median of that decade, $3.84 per share. We left out 2019, which included a $103M termination fee from the failed Hydro One merger. The decade includes the 2021 heat dome, the 2022 gas-price spike and years when Avista earned well below its authorized return, so it covers a full cycle of Pacific Northwest power conditions. In 2025 this stream rose 31% (from $4.11), but that was flattered by regulatory items. Net income plus interest per share rose only 2.2%. The base case assumes no growth in year one. DEBT. Avista owes about $3.3B: $2.77B of long-term bonds and loans at year-end 2025, about $230M of planned 2026 bond issuance, $52M of trust preferred debt, $226M drawn on its credit lines at June 30, 2026 and about $33M of finance leases. Most of the bonds are fixed-rate first mortgage bonds with coupons of 2.9% to 4.5% maturing between 2041 and 2052. Only $25M comes due before 2029. Because those rates are locked in well below today's cost of long-term money, we value the debt at about $2.8B. The credit agreement caps debt at 65% of total capital, and Avista is at roughly 54%. BASE CASE ($30.60). The franchise keeps earning $3.84 per share before interest, flat, for as long as the service territory and the regulatory system last. That is a structural feature with more than a century behind it. We credit no growth. Rate base growth is real, but it is funded with new shares (diluted shares rose from 63.9M in 2016 to 81.1M in 2025) and new debt, and per-share results have grown only about 2% a year. The Washington multi-year rate plan filed in January 2026 and any large data-center loads are not decided or contracted, so they are left out. The business is worth about $5.36B, it owes about $2.80B, and the shares are worth about $2.56B, or $30.60 each. BEAR CASE ($14.93). Three things go wrong. (1) A three-year squeeze like 2021 to 2022, when this measure fell to $2.81 and $2.11 per share: power and gas costs run well above rates, as they did in 2025, when net power supply costs exceeded the amount built into base rates by $78M and the commission declined to change the sharing mechanism under which Avista absorbs part of the excess. That puts the business at $2.45 per share for three years. (2) A wildfire loss beyond insurance. The September 2020 Labor Day windstorm fires across the West, including the Babb Road Fire that burned Malden, Washington in Avista's territory, show the risk is real. Avista's own cases settled for $27M and were covered by insurance, but we charge a $300M uninsured loss in year three. (3) Lasting erosion afterward. The cash level settles at $3.40 per share, and from year eleven it drops to $3.10 as Washington building-code limits on gas and Oregon's Climate Protection Program shrink the gas business. The business is worth about $4.05B, it owes about $2.80B, and the shares are worth about $1.25B, or $14.93 each. Even in the trough the business makes about $205M a year before interest against about $150M of interest, and the extra borrowing keeps it under the 65% covenant. BULL CASE ($46.69). Regulators keep approving rates near the authorized returns, so the cash level matches 2023 to 2025 ($4.11 per share). Per-share results then grow 2% a year for ten years, in line with the past decade, and stay flat after that. The business is worth about $6.71B, it owes about $2.80B, and the shares are worth about $3.91B, or $46.69 each. MARGIN-OF-SAFETY PRICE ($19). We are fairly confident in the earnings level. Regulated returns, a decade of net income between $116M and $197M, and the first half of 2026 all point the same way, though cash flow will stay noisy. The worst plausible event is a catastrophic wildfire far larger than anything Avista has had. The 2025 wildfire laws in Idaho and Washington require approved mitigation plans, but they do not remove the risk. The long-dated debt, the hard regulated assets and the ability to raise capital make it likely the company would survive a loss like the one in the bear case, but a much larger one could wipe out much of the equity. The two places we are most likely to be wrong are the upkeep level and how much regulators let Avista earn. If true upkeep runs $50M a year above depreciation, the shares would be worth about $10 less than our base. The dividend, about $1.96 a share in 2025, is covered by earnings, but the cash for it effectively comes from new borrowing and share sales. At $19 the dividend alone equals about 10% a year over the holding period. If the shares reach base-case value within three years, the base case implies about 24% a year. If we are wrong on upkeep, the implied return falls to about 12% a year, mostly from the dividend, rather than turning into a loss. A price above the low $20s would leave too little margin against the bear case and the wildfire tail. PREVIOUS ANALYSIS. Our earlier figures were built on a different basis and are not comparable.