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AES or DTE: Which Utility Stock is Better Placed Right Now?

Jewel Saha

Utility companies provide basic services like electricity, natural gas and water, and are not much affected by fluctuations of the economy. These are preferred by investors due to stability of operations and their capability to reward shareholders with regular dividend payments.

Utility operation is capital intensive, as consistent investment is required to upgrade and maintain its infrastructure, which includes transmission and distribution lines, and production plants. Usage of modern technology like drones for maintenance and installation of smart meters, as well as strengthening of grids require considerable funding. Apart from internal sources of funds, utilities depend on the credit market for funds to carry on upgrades.

In a way, rising interest rates increase this sector’s cost of capital, in turn impacting margins. Plus, higher cost of funding may force utilities to delay their capital expenditure plans, impacting cash flow and earnings growth. Nonetheless, the current stance of Fed to put interest rates on hold will be beneficial for the utility sector.

Cost control, new electric rates, customer growth and stable demand continue to help the utility sector in maintaining operational stability.

Amid the above backdrop, let’s focus on two Zacks Utility - Electric Power industry stocks, namely DTE Energy Company DTE and The AES Corporation AES, to ascertain which is a profitable utility choice currently.

DTE Energy currently carries a Zacks Rank #2 (Buy) and has a market capitalization of $23.02 billion. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

AES Corp currently carries a Zacks Rank #3 (Hold) and has a market capitalization of $10.76 billion.

Price Performance & VGM Score

In the past 12 months, shares of AES Corp have rallied 34.6%, while that of DTE Energy have gained 26.5%. The industry recorded 15.6% growth over the same period.

Both the stocks have an impressive VGM Score of B. 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 solid Zacks Rank offer the best investment options.

Long-Term Earnings Growth & Surprise Trend

AES Corp’s long-term (three to five years) earnings growth rate is projected at 7.86%. The same for DTE Energy is pegged at 6%.

DTE Energy outpaced the Zacks Consensus Estimate in three of the trailing four quarters, with average positive earnings surprise of 12.24%. AES Corp surpassed the Zacks Consensus Estimate in two out of the trailing four quarters, with average positive earnings surprise of 3.1%.

Return on Equity (ROE)

ROE is a measure of a company’s efficiency in utilizing its shareholder’s funds. ROE for AES Corp and DTE Energy stands at 19.05% and 10.99%, respectively. Notably, both the utilities have outperformed the industry’s ROE of 9.63%.

Debt-to-Capital Ratio

The debt-to-capital ratio is a good indicator of the financial position of a company. The indicator shows how much debt is used to run the business. DTE Energy has a debt-to-capital ratio of 53.69% compared with the industry’s 50.30%. Meanwhile, AES Corp had a debt-to-capital ratio of 76.55% at the end of the first quarter.

Dividend Yields

Utility companies generally distribute dividends. Currently, the dividend yield for AES Corp is 3.4%, better than 3% for DTE Energy. The dividend yield of these utilities is better than the industry average of 2.95%

Earnings Estimate Revision

The Zacks Consensus Estimate for 2019 and 2020 earnings for AES Corp is pegged at $1.34 and $1.45, indicating growth of 2.3% and 4.3%, respectively, from the year-ago reported figures. The Zacks Consensus Estimate for 2019 and 2020 earnings for DTE Energy is pegged at $6.20 and $6.55, indicating growth of 0.3% and 0.6%, respectively, from the year-ago quarter.


Both the companies are providing quality services and presently have plans to invest billions of dollars in capital projects over the next few years. These additions and the expansion of infrastructure will enable these two utilities to serve their expanding customer base more efficiently.  

Markedly, it is quite evident from the above comparisons that AES Corp is a better placed utility stock at the moment.

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