AEP or DTE: Which Electric Utility Stock is a Better Pick?
Utility, being the most stable sector, provides basic services like electricity, gas and water. Market volatility has minimal effect on demand for utility services. Utility companies are mostly mature, fundamentally strong and regulated. Stable earnings and cash flow rewards through regular dividends to investors make the stocks attractive picks.
Regular investment in infrastructure is another common factor. To maintain uninterrupted flow of service, utilities need to upgrade and strengthen existing infrastructure and modernize the generation fleet. Monitoring and servicing on a day-to-day basis increases customers’ reliability and resiliency on the service providers.
In this article, we run a comparative analysis on two electric power utilities — American Electric Power Co., Inc. AEP and DTE Energy Company DTE — to figure which one is a better option for investment right now.
Earnings & Surprise Trend
American Electric Power’s second-quarter 2018 adjusted earnings per share beat the Zacks Consensus Estimate by 14.8%. The company has surpassed the Zacks Consensus Estimate in two of the trailing four trailing quarters, the average being 3.08%.
DTE Energy’s second-quarter 2018 operating EPS surpassed the Zacks Consensus Estimate by 22.5%. The company beat the Zacks Consensus Estimate in three of the trailing four quarters, the average being 5.69%.
DTE Energy surpassed the mark by a higher percentage and has an edge over American Electric Power, courtesy of consistent performance.
American Electric Power and DTE Energy have higher debt/capital ratio than the industry’s 50.28% and S&P 500 composite’s 41.69%. American Electric Power has 51.39% debt/capital ratio and the same for DTE Energy is 55.18%.
American Electric Power has a market capitalization of around $35.74 billion and the same for DTE Energy is $20.65 billion.
American Electric Power with lower debt/capital ratio and bigger market capitalization wins this round.
Utility Companies generally distribute dividends. Currently, dividend yield of 3.22% from Zacks Utility - Electric Power industry is better than the S&P 500 composite’s 1.79%. Dividend yield for American Electric Power is 3.42%, higher than DTE Energy’s 3.11%. American Electric Power wins here.
In the past 30 days, the Zacks Consensus Estimate for American Electric Power’s earnings in 2018 and 2019 inched up 0.5% and 0.2%, respectively. The company’s year-over-year earnings growth is expected at 4.55%.
The same for DTE Energy’s earnings in 2018 and 2019 moved up 6.2% and 3.4%, respectively. The company’s year-over-year earnings growth is estimated at 13.51%.
DTE Energy wins this round.
American Electric Power carries a Zacks Rank #3 (Hold). The stock has an impressive VGM Score of B.
DTE Energy holds a Zacks Rank #2 (Buy). The stock has VGM Score of C. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Here V stands for Value, G for Growth and M for Momentum with the score being a weighted combination of all three factors. Back tested results show that stocks with a favorable VGM Score of A or B coupled with a bullish Zacks Rank are the best investment options.
Shares of American Electric Power and DTE Energy have gained 10.3% and 13.2%, respectively compared with the industry’s rise of 5.6% in the past three months. Price movement of DTE Energy is better than American Electric Power.
How Utilities Are Shaping Up for Q3
Focus on strengthening existing infrastructure will allow utilities to serve customers more efficiently. Transition is a common trend in the utility market. Electric utilities are replacing the primary fuel source, coal, as they are shifting focus toward renewables. Meanwhile, rising interest rates are making federal borrowings less profitable and more expensive for traders. Moreover, interest rates might rise twice in 2018 which is a major concern for utilities.
Our comparative analysis shows that American Electric Power holds an edge over DTE Energy in terms of debt/capital and dividend yield. However, DTE Energy has an edge in terms of earnings surprise trend, estimates movement and price performance. It is quite difficult to pick a winner. In spite of a marginal difference between these high-quality utilities, our verdict tilts toward American Electric Power for its better VGM score.
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American Electric Power Company, Inc. (AEP) : Free Stock Analysis Report
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