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D or DUK: Which Electric Utility Stock Should You Invest in?
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The Utility sector is one of the most stable sectors for investment, as it deals with the basic services. Most of the Utility companies are mature, fundamentally strong and focused on domestic as well as industrial usages. Electric Utilities basically generate power along with strengthening transmission and distribution lines.
Consistent investment is required to upgrade, maintain and replace older wears, electric poles as well as power stations. These stocks are highly regulated as well as capital intensive, at the federal and state levels. A steady performance, stable earnings and cash flow rewards investors through regular dividends. It is always a safe instrument to invest for getting systematic long-term income.
Utility Sector is expected to register an earnings growth of 12.7% in first quarter 2018 on the back of revenue growth of 0.1%. (For more details read our weekly Earnings Preview report)
Being aware of environmental concerns, some utilities took steps to lower emission levels, which included the shutting down of old coal-based power plants, investing in emission control equipment and increasing the share of natural gas and alternate energy sources in electricity generation.
In this write up, we run a comparative analysis on two prominent electric power utilities — Dominion Energy, Inc. (D - Free Report) and Duke Energy Corporation (DUK - Free Report) — to figure which one is a better option for investment right now.
Dominion Energy, carrying a Zacks Rank #3 (Hold), has a market capitalization of around $54.30 billion and is among the leading Electric power companies globally. You can see the complete list of today’s Zacks #1 Rank stocks here.
Duke Energy Corporation, holding a Zacks Rank #3, has a market capitalization of $61.29 billion.
Debt-to- Capital
The debt-to-capital is a good indicator of the financial position of a company and shows how much debt is used to run the business. Dominion Energy has a debt-to-capital is 61.51% compared with the industry’s average of 49.20%. With a lower debt-to-capital of 54.02% Duke Energy wins this round.
Current Ratio
This metric measures the ability of a company to meet its short-term debt obligations, efficiently. In other words, it is the ratio of the current level of total assets versus the current level of liabilities. Here, Duke Energy is a winner with a current ratio of 0.68, which is better than Dominion Energy’s reading of 0.45. Return on Equity (ROE)
ROE is a measure of a company’s efficiency in utilizing shareholder’s funds. ROE for the trailing 12-months for Duke Energy and Dominion Energy is 7.73% and 12.67%, respectively. While Dominion Energy have scored above the industry’s level of 8.03%, Duke Energy lagged the same. Dominion Energy has an edge over Duke Energy. Valuation
Dominion Energy and Duke Energy are underpriced, with P/E (F1) multiple) of 16.77 and 16.21, respectively, compared with the S&P 500 multiple of 17. Clearly, Duke Energy is cheaper and scores on this front. Dividend Yields
Utility Companies generally distribute dividends. Currently dividend yield for Dominion Energy stands at 4.94%, higher than 4.67% of Duke Energy. The company’s dividend yield is higher than the industry’s 3.48%. Dominion Energy wins here.
Earnings Surprise History
Dominion Energy outpaced the Zacks Consensus Estimate in each of the trailing four quarters, with an average positive earnings surprise of 1.74%. Meanwhile, Duke Energy has delivered positive earnings surprises in two of the trailing four quarters while missed twice, generating an average positive earnings surprise of 0.59%. Dominion Energy has an edge with consistent performance.
Long-Term Growth Expectations
In terms of long term earnings growth expectations, Dominion Energy scores above Duke Energy. The expected earnings per share growth rate for Dominion Energy for the next five years stands at 6.80% compared with 3.69% for Duke Energy.
The Verdict
Our comparative analysis shows that Dominion Energy holds an edge over Duke Energy in terms of ROE measures, dividend yield, earnings surprise history and long-term growth expectations. However, Duke Energy has an edge in terms of debt-to-capital, valuation and current ratio. Shares of the companies have not only underperformed S&P 500 index, but are also under priced. It is the best time to buy good stocks at lower price. As the scale of comparison is clearly tipped in favor of Dominion Energy, it is a better investment pick than Duke Energy.
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D or DUK: Which Electric Utility Stock Should You Invest in?
The Utility sector is one of the most stable sectors for investment, as it deals with the basic services. Most of the Utility companies are mature, fundamentally strong and focused on domestic as well as industrial usages. Electric Utilities basically generate power along with strengthening transmission and distribution lines.
Consistent investment is required to upgrade, maintain and replace older wears, electric poles as well as power stations. These stocks are highly regulated as well as capital intensive, at the federal and state levels. A steady performance, stable earnings and cash flow rewards investors through regular dividends. It is always a safe instrument to invest for getting systematic long-term income.
Utility Sector is expected to register an earnings growth of 12.7% in first quarter 2018 on the back of revenue growth of 0.1%. (For more details read our weekly Earnings Preview report)
The Zacks Utility - Electric Power industry’s dividend yield of 3.48% is higher than the S&P 500 index’s 1.77%.
Being aware of environmental concerns, some utilities took steps to lower emission levels, which included the shutting down of old coal-based power plants, investing in emission control equipment and increasing the share of natural gas and alternate energy sources in electricity generation.
In this write up, we run a comparative analysis on two prominent electric power utilities — Dominion Energy, Inc. (D - Free Report) and Duke Energy Corporation (DUK - Free Report) — to figure which one is a better option for investment right now.
Dominion Energy, carrying a Zacks Rank #3 (Hold), has a market capitalization of around $54.30 billion and is among the leading Electric power companies globally. You can see the complete list of today’s Zacks #1 Rank stocks here.
Duke Energy Corporation, holding a Zacks Rank #3, has a market capitalization of $61.29 billion.
Debt-to- Capital
The debt-to-capital is a good indicator of the financial position of a company and shows how much debt is used to run the business. Dominion Energy has a debt-to-capital is 61.51% compared with the industry’s average of 49.20%. With a lower debt-to-capital of 54.02% Duke Energy wins this round.
Current Ratio
This metric measures the ability of a company to meet its short-term debt obligations, efficiently. In other words, it is the ratio of the current level of total assets versus the current level of liabilities. Here, Duke Energy is a winner with a current ratio of 0.68, which is better than Dominion Energy’s reading of 0.45.
Return on Equity (ROE)
ROE is a measure of a company’s efficiency in utilizing shareholder’s funds. ROE for the trailing 12-months for Duke Energy and Dominion Energy is 7.73% and 12.67%, respectively. While Dominion Energy have scored above the industry’s level of 8.03%, Duke Energy lagged the same. Dominion Energy has an edge over Duke Energy.
Valuation
Dominion Energy and Duke Energy are underpriced, with P/E (F1) multiple) of 16.77 and 16.21, respectively, compared with the S&P 500 multiple of 17. Clearly, Duke Energy is cheaper and scores on this front.
Dividend Yields
Utility Companies generally distribute dividends. Currently dividend yield for Dominion Energy stands at 4.94%, higher than 4.67% of Duke Energy. The company’s dividend yield is higher than the industry’s 3.48%. Dominion Energy wins here.
Earnings Surprise History
Dominion Energy outpaced the Zacks Consensus Estimate in each of the trailing four quarters, with an average positive earnings surprise of 1.74%. Meanwhile, Duke Energy has delivered positive earnings surprises in two of the trailing four quarters while missed twice, generating an average positive earnings surprise of 0.59%. Dominion Energy has an edge with consistent performance.
Long-Term Growth Expectations
In terms of long term earnings growth expectations, Dominion Energy scores above Duke Energy. The expected earnings per share growth rate for Dominion Energy for the next five years stands at 6.80% compared with 3.69% for Duke Energy.
The Verdict
Our comparative analysis shows that Dominion Energy holds an edge over Duke Energy in terms of ROE measures, dividend yield, earnings surprise history and long-term growth expectations. However, Duke Energy has an edge in terms of debt-to-capital, valuation and current ratio. Shares of the companies have not only underperformed S&P 500 index, but are also under priced. It is the best time to buy good stocks at lower price. As the scale of comparison is clearly tipped in favor of Dominion Energy, it is a better investment pick than Duke Energy.
Looking for Stocks with Skyrocketing Upside?
Zacks has just released a Special Report on the booming investment opportunities of legal marijuana.
Ignited by new referendums and legislation, this industry is expected to blast from an already robust $6.7 billion to $20.2 billion in 2021. Early investors stand to make a killing, but you have to be ready to act and know just where to look.
See the pot trades we're targeting>>