AVA

We rate AVISTA CORP (AVA) as a Reduce with a composite score of 45.4/100 at a current price of $42.65. The quantitative profile shows weakness across multiple dimensions, suggesting limited upside potential and elevated risk of underperformance relative to peers over the next 12 months.

The rating is primarily driven by strength in stability (91th percentile) and momentum (44th percentile), which together account for the majority of the composite score. Offsetting weakness in quality (27th percentile) and value (36th percentile) tempers our overall conviction. We assign a No Moat rating (26/100), High uncertainty, and Poor capital allocation.

Key items to watch: balance sheet deleveraging progress. Any material change in these dynamics could warrant a reassessment of our rating. The moat trend is stable, which suggests the competitive landscape is stable for now.

AVISTA CORP holds a top-quartile position (#0 of 50) within the Transportation, Communications, Electric, Gas, And Sanitary Services sector, based on our composite quantitative scoring across quality, value, momentum, and stability factors. The composite score of 45.4/100 places it at rank #2743 in our full 7,333-stock universe. At $3.1B in market capitalization, AVISTA CORP is a mid-cap player in the Transportation, Communications, Electric, Gas, And Sanitary Services space, which limits certain scale advantages but may allow for more agile strategic execution.

Revenue is growing at 0%, though momentum at the 44th percentile suggests the market has not yet fully recognized this trajectory. This potential disconnect between fundamental improvement and market recognition could represent an opportunity for patient investors if the growth trend persists.

The margin cascade tells an important story: gross margins of 40% (-15.1pp vs sector) narrow to operating margins of 15% (-2.2pp vs sector) and net margins of 7.0%, yielding a gross-to-net conversion rate of 18%. This conversion rate is typical for the sector, suggesting a standard cost structure without notable efficiency advantages or disadvantages.

At a current price of $42.65, AVISTA CORP is trading at a premium to fundamental value. Our value factor score of 36/100 reflects a composite assessment across multiple valuation metrics including price-to-earnings, price-to-book, EV/EBITDA, and price-to-sales ratios relative to both sector peers and the broader market. The premium valuation implies the market is pricing in significant future growth or quality improvements that are not yet fully reflected in current fundamentals.

The stock currently trades at a P/E of 24.5x (a 45% premium to the sector median of 16.9x), EV/EBITDA of 11.8x (at a premium), P/B of 1.3x, P/S of 1.9x. The above-sector P/E multiple suggests the market is pricing in superior growth or quality, which our analysis finds only partially justified by current fundamentals.

We assign a High uncertainty rating to AVISTA CORP. Key risk factors include significant leverage (209% debt-to-equity), weak quality scores (27th percentile), low beta of 0.09 — while defensive, this may indicate limited upside participation in bull markets. The wide range of potential outcomes widens our fair value estimate and increases the possibility of permanent capital impairment. Investors considering this name should size positions accordingly and demand a meaningful margin of safety before initiating.

Specific risk factors that inform our assessment include: significant leverage (209% debt-to-equity); weak quality scores (27th percentile); low beta of 0.09 — while defensive, this may indicate limited upside participation in bull markets. Each of these factors independently widens the distribution of potential outcomes, and in combination they create a risk profile that demands careful position sizing. The stability factor at the 91th percentile and quality factor at the 27th percentile provide a quantitative summary of the overall risk landscape.

Key risk mitigants include: above-average stability (91th percentile) suggests predictable business dynamics; a 5.14% dividend yield anchors total return. These factors partially offset the identified risks and provide downside protection in adverse scenarios. On balance, the risk-reward profile warrants caution and disciplined position management.

We rate AVISTA CORP's capital allocation as Poor. Key concerns include elevated leverage (209% D/E), weak asset returns (ROA 1.7%). Exemplary capital allocators generate ROE above 20% and maintain conservative leverage — AVISTA CORP significantly underperforms these benchmarks, raising questions about management's ability to create shareholder value.

Investors should scrutinize management's reinvestment decisions and balance sheet trajectory before committing capital. Poor capital allocation often compounds over time: overlevered balance sheets limit strategic flexibility, while low returns on capital destroy shareholder value. We would need to see sustained improvement in profitability metrics and balance sheet discipline before considering an upgrade.

In summary, AVISTA CORP receives a Reduce rating with a composite score of 45.4/100 (rank #2743 of 7,333). Our quantitative framework assigns a No Moat (26/100, trend: stable), High uncertainty, and Poor capital allocation. The average factor score across quality, value, momentum, stability, and investment is 48/100.

Our analysis does not support a constructive view on AVISTA CORP at this time. The combination of limited competitive advantages, high uncertainty, and poor capital allocation suggests unfavorable risk-reward at current levels. We recommend investors avoid new positions and existing holders consider reducing exposure.