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 help in the transition to cost-effective, renewable energy sources to produce electricity aid the power industry.
Utility companies operating in the United States are taking measures to strengthen their infrastructure, including the process of generation, transmission, distribution, storage and the sale of electricity to customers. 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. 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 article, we run a comparative analysis on two Zacks Utility— Electric Power companies — DTE Energy Company ( DTE Quick Quote DTE - Free Report) and PPL Corporation ( PPL Quick Quote PPL - Free Report) — 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. DTE Energy has a market capitalization of $22.5 billion, while PPL has $19.3 billion. Growth Projections
The Zacks Consensus Estimate for DTE’s 2023 earnings is pegged at $6.20 per share on revenues of $16.7 billion. This indicates year-over-year bottom-line growth of 1.6% and a revenue decline of 13.2%.
The consensus mark for PPL’s 2023 earnings is pinned at $1.59 per share on revenues of $7.7 billion. This implies year-over-year bottom-line growth of 12.8% and a revenue decline of 2.2%. Price Performance
In the past month, DTE Energy’s shares have risen 1.5% compared with the industry's growth of 0.5%. Shares of PPL declined 0.1% in the same time frame.
Image Source: Zacks Investment Research Return on Equity (ROE)
ROE is a measure of a company’s efficiency in utilizing shareholders’ funds. The current ROE for DTE Energy and PPL is 10.6% and 7.8%, respectively, compared with the industry’s 4.9%.
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, DTE Energy and PPL have a debt-to-capital of 21.5% and 51%, respectively, compared with the industry’s 58.1%.
The times interest earned (TIE) ratio for DTE is 2.7, and the same for PPL is 2.6. 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 DTE Energy is 3.49%, and the same for PPL is 3.67%. The dividend yields of these companies are better than the Zacks S&P 500 Composite’s average of 1.45%.
DTE Energy and PPL are evenly matched and good picks for your portfolio. However, our choice at this moment is DTE, given its better ROE, debt position and higher price performance than PPL.