Utilities are safe investment options as these are mostly regulated and remain more or less steady in the face of economic fluctuations. These stocks thus provide investors with stable earnings and performance along with regular dividend.
Utilities are interest rate sensitive as they require constant investments to fund their capital projects. So, when the central bank revises the rates downward, it lowers capital servicing costs for utility companies. Though the recent rate cuts indicate economic slowdown, this will enable these companies to borrow funds at lower rates.
Currently, companies are focused on lowering carbon emission and are trying to shift their energy generation to renewable sources. In the Utility - Electric Power industry, players are going through a transition phase. Along with this, they are inclined toward the addition of energy storage projects to their portfolio. Such initiatives help meet heightened demand.
In this article, we run a comparative analysis of two electric power utilities — Consolidated Edison Inc. ED and CMS Energy Corp. CMS — to ascertain which of the Zacks Rank #3 (Hold) stocks is a better one to hold.
Consolidated Edison and CMS Energy have market capitalization of $29.38 billion and $19.42 billion, respectively. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
In the past 12 months, shares of CMS Energy have returned 28% compared with the industry’s rise of 21.5% and Consolidated Edison’s increase of 8.7%.
The Zacks Consensus Estimate for CMS Energy’s 2020 earnings per share is pegged at $2.67 on revenues of $7.12 billion. The bottom-line figure suggests a 7.23% year-over-year increase. The same for the top line calls for a 4.02% rise on a year-on-year basis.
The consensus mark for Consolidated Edison’s 2020 earnings per share is pegged at $4.49 on revenues of $13.06 billion. The bottom-line suggests a 2.75% year-over-year increase. The same for the top line implies a 3.85% increase year on year.
Consolidated Edison’s long-term (3 to 5 years) earnings are expected to improve 2% compared with CMS Energy’s 7.10%.
Return on Equity (ROE)
ROE is a measure of a company’s efficiency in utilizing shareholders’ funds. ROE for the trailing 12-months for Consolidated Edison and CMS Energy is 8.02% and 14.28%, respectively. The industry’s ROE is at 9.72%. Clearly, CMS Energy has an edge over Consolidated Edison in this respect.
Currently, the dividend yield for CMS Energy is at 2.38%, compared with 3.48% for Consolidated Edison. Both the companies’ dividend yield is better than the Zacks S&P 500 composite’s 1.87%.
Consolidated Edison pulled off an average positive earnings surprise of 1.15% in the last four quarters. CMS Energy has an average negative earnings surprise of 2.83% for the last four quarters.
Our comparative analysis shows that Consolidated Edison has an edge over CMS Energy in terms of surprise trend and dividend yield. CMS Energy takes the cake in terms of price movement, long-term earnings growth, ROE measure and growth projections. It is clear that CMS Energy is a better utility stock than Consolidated Edison.
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Consolidated Edison Inc (ED) : Free Stock Analysis Report
CMS Energy Corporation (CMS) : Free Stock Analysis Report
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