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AEP or DTE: 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 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.

The performance of capital-intensive domestic-focused 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 — American Electric Power Inc. (AEP - Free Report) and DTE Energy Company (DTE - 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.

Growth Projection & Surprise History

The Zacks Consensus Estimate for American Electric Power’s 2022 earnings has moved up by 0.6% in the past 60 days to $5.01 per share.

The Zacks Consensus Estimate for DTE Energy’s 2022 earnings has moved up by 1.7% in the past 60 days to $6.04 per share.

AEP delivered an average earnings surprise of 2.4% in the last four quarters, while DTE delivered an earnings surprise of 8.9% in the last four quarters.

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. American Electric Power and DTE Energy have a debt-to-capital level of 60.8% and 67.6%, respectively, compared with the industry’s average debt-to-capital level of 58.3%.

Price Performance

In the past six months, American Electric Power’s shares have rallied 23.9% compared with the industry's growth of 8.3%. Meanwhile, shares of DTE Energy have rallied 18.5% in the same period.

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Image Source: Zacks Investment Research

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 AEP and DTE is 10.6% and 13.6%, respectively. Both stocks have outperformed the industry’s ROE of 10.3%.

Outcome

Although these companies are efficiently providing services for customers, DTE Energy, with its higher earnings surprise and superior ROE, is a better stock to add to your portfolio.


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DTE Energy Company (DTE) - free report >>

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