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Avista garners analyst support

Some investment analysts this summer have changed their tune on Avista Corp. stock, recommending people buy it in light of optimistic predictions about company performance next year.

Avista recently lowered per-share earnings expectations for 2007, and its stock closed at just $19.69 on Monday – near its 52-week low. But analysts foresee a possible rate increase helping Avista’s bottom line and predict potential dividend increases as the company looks to refinance debt and focus on its core regulated-utility business.

“A lot of the bad news is already reflected in that share price,” said Jim Bellessa, of D.A. Davidson & Co.

With the stock’s price barely more than book value, or the theoretical net worth of the company, there’s little risk of further price decreases, said Paul Latta of Seattle-based McAdams Wright Ragen Inc. Latta, who issued a “buy” advisory Monday, said he figures the company will likely reward shareholders for decent 2008-2009 earnings after a revenues slump this year.

The stock has declined fairly steadily since November when it hit a 52-week high of $27.52. Avista expects earnings per share between 85 cents and $1 this year, a decline from its earlier forecast of $1.40 to $1.55 per share. Avista recorded $1.47 per share for 2006.

Latta predicts the stock could be worth $24 in a year or two. He recently resumed actively covering Avista after ceasing in 2003, he said.

Bellessa last month recommended buying for the first time since last June. He forecasts earnings of $1.45 a share for 2008 and possible customer growth.

A dividend increase could stem from Avista striving to offer payouts similar to other utilities that pay 60 percent to 70 percent of profits, Bellessa said. Utilities are typically regarded as a relatively stable investment, Latta said. Avista recently sold its unregulated energy-trading subsidiary Avista Energy – a move analysts think could benefit shareholders – and it has dumped fuel cell and communications companies in past years.

Not all investment firms are so hopeful. A utilities analyst for A.G. Edwards & Sons Inc. earlier this month recommended investors hold the stock, citing Avista’s pending rate-increase request in Washington. In April, Avista asked state regulators for a $51.1 million, or 15.9 percent, increase in electricity rates and a $4.5 million, or 2.3 percent, increase in gas rates. The company expects a decision by March.

If the state grants it, a portion of the money should go to Avista’s bottom line, Bellessa said.

Avista also may have an opportunity next summer to refinance $270 million in debt that carries dividend restrictions, further increasing dividends and helping Avista’s credit status, according to Latta’s report. Fitch Ratings recently upgraded Avista’s credit ratings, which suffered losses after the 2000-2001 Western energy crisis.