PNW or NI: Which Is a Better Utility Electric Power Stock?
Utilities have been benefiting from various favorable factors, such as new electric rates, customer additions, cost management and the implementation of energy-efficiency programs.
Also, the ongoing investments to improve the resiliency of electric infrastructure against extreme weather conditions and the transition to cost-effective, renewable energy sources to produce electricity aid the power industry.
The performance of capital-intensive domestic-focused utilities is likely to be adversely impacted by an increase in interest rates as capital servicing costs rise substantially from the current levels. An increase in borrowing costs and a resultant rise in interest expenses are likely to adversely impact the earnings of companies operating in this space.
The U.S. electric power sector is gradually moving toward cleaner sources of energy to produce electricity. Most of the companies have pledged to deliver 100% clean energy and achieve the zero-emission target in the coming years.
Furthermore, the government is assisting in increasing the use of renewable energy through tax credits. It is also helping operators to achieve the long-term objective of carbon neutrality by 2050.
Per a U.S. Energy Information Administration report, the annual share of U.S. electricity generation from renewable energy sources will rise 23% in 2023 and 25% in 2024.
In this blog, we run a comparative analysis on two Zacks Utility— Electric Power companies — Pinnacle West Capital Corporation PNW and NiSource Inc. NI — to decide which one is a better pick for your portfolio.
Both the stocks carry a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Pinnacle West Capital has a market capitalization of $9.3 billion, while NiSource has $11.3 billion.
Growth Projections
The Zacks Consensus Estimate for PNW’s 2023 earnings is pinned at $4.08 per share on revenues of $4.4 billion. This implies year-over-year bottom-line decrease of 4.2% and revenue growth of 2.1%.
The consensus mark for NI’s 2023 earnings is pegged at $1.6 per share on revenues of $5.8 billion. This indicates year-over-year bottom-line growth of 8.8% and a revenue decline of 1.1%.
Price Performance
In the past month, shares of PNW and NI have risen 2.9% and 1.7%, respectively. Both the companies have outperformed the industry’s average growth of 1.6% in the same time frame.
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Return on Equity (ROE)
ROE is a measure of a company’s efficiency in utilizing shareholders’ funds. The current ROE for Pinnacle West Capital and NiSource is 7.5% and 11.1%, respectively, compared with the industry’s 4.9%.
Debt Position
The debt-to-capital ratio is a vital indicator of the financial position of a company. It shows the amount of debt used to run a business. Currently, Pinnacle West Capital and NiSource have a debt-to-capital of 57.89% and 59.12%, respectively, compared with the industry’s 58.1%.
The times interest earned (TIE) ratio for PNW is 2.8, and the same for NI is 3.2. Since both the companies have a TIE ratio exceeding one, it indicates that they have enough financial flexibility to meet their near-term debt obligations.
Dividend Yield
Utility companies generally distribute dividends and increase shareholders’ value. Currently, the dividend yield for Pinnacle West Capital is 4.23% and the same for NiSource is 3.65%. The dividend yields of these companies are better than the Zacks S&P 500 Composite’s average of 1.43%.
Outcome
Both Pinnacle West Capital and NiSource are evenly matched and good picks for your portfolio. They have the potential to improve further from their current position and serve the needs of their growing customer base. However, our choice at this moment is PNW, given its better debt position, higher dividend yield and better price performance than NI.
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NiSource, Inc (NI) : Free Stock Analysis Report
Pinnacle West Capital Corporation (PNW) : Free Stock Analysis Report
