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DUK or AEP: Which Electric Utility Stock Should You Invest In?

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Utility is one of the most stable sectors for investment, as it deals with basic services. Most Utility players are mature, fundamentally strong and focus on domestic as well as industrial usages. Utility companies are generally regulated. These players reward investors with regular dividends, courtesy of stable performance, earnings and cash flow. It is always a safe to invest for systematic long-term income. Currently, dividend yield of 3.27% from the Zacks Utility - Electric Power industry is better than the S&P 500 index’s 1.76%.

As of now, 95% of S&P 500 companies have reported first-quarter 2018 results. Utility registered 20.9% earnings growth and 3.2% revenue growth in the first quarter. The upside can be attributed to favorable weather conditions, tax reforms and higher return from regulated operations as well as infrastructure investments.

In this article, we do a comparative analysis on two prominent electric power utilities — Duke Energy Corporation (DUK - Free Report) and American Electric Power Company, Inc. (AEP - Free Report) — to ascertain which one is a suitable investment option right now.

Earnings & Surprise Trend

Duke Energy reported first-quarter 2018 adjusted earnings per share of $1.28 per share, beating the Zacks Consensus Estimate of $1.15 by 11.3%.

American Electric Power reported first-quarter 2018 adjusted earnings of 96 cents, missing the Zacks Consensus Estimate of $1.00 per share by 4%.

Duke Energy has surpassed the Zacks Consensus Estimate in three out of four trailing quarters with an average positive earnings surprise of 3.89%. American Electric Power has surpassed the Zacks Consensus Estimate in one out of four trailing quarters with an average negative surprise of 2.75%.


Duke Energy continues to expect adjusted earnings per share in the range of $4.55-$4.85 for 2018.

American Electric expects 2018 operating earnings in the range of $3.75-$3.95.

Estimates Movement

In the last 60 days, the Zacks Consensus Estimate for Duke Energy’s 2018 earnings moved up by a penny to $4.71. For 2019, estimates remain unchanged at $4.95.

The Zacks Consensus Estimate for 2018 earnings declined by a penny to $3.88 for American Electric Power in the last 60 days. Estimates for 2019 were unchanged at $4.12.

Zacks Rank

Duke Energy holds a Zacks Rank #2 (Buy). The company has a market capitalization of around $53.14 billion.

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

American Electric Power carries a Zacks Rank #3 (Hold). It has a market capitalization of $33.11 billion.

Price Movement

Shares of Duke Energy and American Electric Power have gained 1.4% and 3.0%, respectively, compared with the industry’s rise of 2.5% in the last three months.


How Utilities Are Shaping Up for Q2

Electric Utilities generate power and strengthen transmission and distribution lines. The focus on upgrading existing infrastructure will allow the companies to serve customers more efficiently. Proper maintenance of existing assets, upgrades as well as addition to transmission and distribution lines will increase resilience of operations and lower power outages.

The usage of smart technology like drones for maintenance of infrastructure will help the utilities reduce cost of operations.  The installation of smart meters is helping users make efficient use of electricity. The companies are investing to produce more electricity from renewable energy sources. They are also spending on battery storage projects to increase resilience of their grid.

Utility is expected to register earnings growth of 1.5% in second-quarter 2018 on the back of revenue growth of 2.6%. (For more details read our weekly Zacks Earnings Trends report)

The Verdict

Duke Energy beat the Zacks Consensus Estimate with an average positive earnings surprise in last four quarters, while earnings miss from American Electric Power resulted in an average negative earnings surprise.

Duke Energy holds a better Zacks Rank and witnessed estimates for 2018 move up in the last 60 days. Estimates for American Electric Power moved south in the same period.

Even though the companies are high-quality utilities and serve a large volume of customers, our verdict currently tilts toward Duke Energy.

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