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MGEE or HE: Which Is a Better Utility Power Stock to Pick?

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Utilities operating in the United States are taking measures to strengthen their power infrastructure, which involves the process of generation, transmission, distribution, storage and the sale of electricity to customers. Per the U.S. Energy Information Administration (EIA), the total electricity consumption is expected to improve by 1.6% in 2022 and 1% in 2023 from respective year-ago levels.

Utilities have been benefiting from various favorable factors, such as new electric rates, customer additions, cost management and the implementation of energy-efficiency programs. Moreover, the ongoing investments to improve the resiliency of electric infrastructure against extreme weather conditions and a transition to the cost-effective alternate sources of fuel to produce electricity are advantageous for the power industry.

Per the EIA, the annual share of U.S. electricity generation from renewable energy sources will rise from 20% in 2021 to 22% in 2022 and 24% in 2023 due to the continuous addition of solar and wind-generating capacity. However, the performance of capital-intensive utilities is likely to have been adversely impacted by an increase in interest rates from near-zero levels. An increase in borrowing costs and a resultant rise in interest expenses are likely to have adversely impacted the earnings of companies operating in the space.

The ultimate goal of utilities is to make the system strong, resilient and reliable. Per the EIA, major utilities in the United States have been spending more on delivering electricity to customers and less on producing it. These upgrades will assist the network in performing better amid adverse weather conditions and ensure that end-users get a 24x7 supply of electricity and face minimum outages.

In this article, we run a comparative analysis on two Utility – Electric Power companies — MGE Energy Inc. (MGEE - Free Report) and  Hawaiian Electric Industries Inc. (HE - Free Report) — to decide which stock is a better pick for your portfolio now.

Both the stocks currently carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1  Rank(Strong Buy) stocks here.

MGE Energy has a market capitalization of $2.96 billion, while the same for Hawaiian Electric Industries is $4.6 billion.

Growth Projection & Surprise History

The Zacks Consensus Estimate for MGE Energy’s 2022 earnings has moved up by 1% in the past 60 days to $3.13 per share.

The Zacks Consensus Estimate for Hawaiian Electric Industries’ 2022 earnings has moved up by 3.3% in the past 60 days to $2.19 per share.

MGEE delivered a negative average earnings surprise of 3.8% in the last four quarters, while HE delivered an earnings surprise of 30.8% in the last four quarters.

Dividend Yield

Utility companies generally distribute dividends. Currently, the dividend yield for MGE Energy is pegged at 1.9%, while Hawaiian Electric Industries’ dividend yield is 3.3%. Hawaiian Electric Industries’ dividend yield is better than the industry average of 3.1%.

Debt to Capital

Debt to capital is a good indicator of the financial position of a company. The indicator shows how much debt is used to run the business. MGEE and HE have a debt to capital of 60.6% and 52.3%, respectively, compared with the industry’s average debt-to-capital level of 60.2%.

Return on Equity

Return on Equity (ROE) is a measure of a company’s efficiency in utilizing shareholders’ funds. ROE for the trailing 12 months for MGE Energy and Hawaiian Electric Industries is 10.2% and 10.7%, respectively. Hawaiian Electric Industries outperformed the industry’s ROE of 10.3%.

Outcome

Although these companies are efficiently providing services to customers, Hawaiian Electric Industries, with its positive earnings surprise, efficient debt management, higher dividend yield and superior ROE, is a better stock to add to your portfolio.


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Hawaiian Electric Industries, Inc. (HE) - free report >>

MGE Energy Inc. (MGEE) - free report >>

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