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AEE vs. ETR: Which Stock is a Better Bet for Your Portfolio?

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Demand for services provided by utilities registers a steady rise as these are basic necessities of the society. Market for the same is nonvolatile as electricity, gas and water fulfill basic needs. These companies are generally regulated, fundamentally strong and mature. Stable earnings and cash flow rewards through regular dividends to investors make these stocks attractive.

Currently, dividend yield of 3.05% from Zacks Utility - Electric Power industry is better than the Zacks S&P 500 Composite’s 1.95%.

In this article, we run a comparative analysis on two prominent electric power utilities — Ameren Corporation (AEE - Free Report) and Entergy Corporation (ETR - Free Report) — to ascertain which one performed better and is a suitable investment option right now.

Price Movement

Shares of Ameren have gained 7.9% while the Entergy stock has inched up 0.2% against the industry’s decline of 5.2% in the past 12 months. Thus, price movement of Ameren is better compared with the Entergy 's price performance.



Earnings & Surprise Trend

Ameren’s third-quarter 2018 operating earnings beat the Zacks Consensus Estimate by 17.19%. The company surpassed the consensus estimate in all the trailing four reported quarters, the average being 15.4%.

Entergy’s third-quarter adjusted earnings topped the Zacks Consensus Estimate by 33.22%. The company exceeded the consensus mark in three of the trailing four reported quarters, the average beat being 36.2%.

VGM Score

Both Ameren and Entergy have an impressive VGM Score of B. Here V stands for Value, G for Growth and M for Momentum with the score being a weighted combination of all three factors. Back tested results show that stocks with a favorable VGM Score of A or B coupled with a top Zacks Rank offer the best investment bets.

Dividend Yield

Ameren’s dividend yield of 2.7% is higher than the Zacks S&P 500 Composite’s 1.95%. While the same is lower compared with the industry average of 3.05%.

Entergy’s dividend yield of 4.24% lies above the industry’s 3.05% and the Zacks S&P 500 Composite’s 1.95%.

Debt/Capital

Ameren has 49.40% debt/capital ratio while Entergy has 64.73%. Thus, the former is less leveraged than the latter. The debt level is presently higher than the industry average of 49.52%.

Estimate Revision

In the past 30 days, the Zacks Consensus Estimate for Ameren’s 2018 earnings has moved 3.1% north to $3.37 and the company’s year-over-year growth is pegged at 19.08%.

The Zacks Consensus Estimate for Entergy’s current-year bottom line has been revised 5.1% upward to $6.98 in the past 30 days. While its decline is anticipated at 3.06% year over year.

Zacks Rank

Ameren carries a Zacks Rank #2 (Buy). The company has a market capitalization of around $16.57 billion. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Entergy holds a Zacks Rank 2. It has a market capitalization of $15.55 billion.

How Utilities are Shaping Up for Q4

Regular investment in infrastructure will allow utilities to maintain an uninterrupted flow of service. Utilities are resorting to upgrade and strengthening of the existing infrastructure along with modernizing generation fleet. Monitoring and servicing on a day-to-day basis will heighten customers’ reliability and resiliency on the service providers.

Another undergoing aspect in the utility market specifically for electric utilities is transition. As a result, companies are shifting focus toward renewable energy, thereby replacing the primary fuel source of coal. Meanwhile, rising interest rates are making federal borrowings less profitable and more expensive for traders. Moreover, interest rates has raised thrice in 2018, which is a major concern for utilities.

The Verdict

Both Ameren and Entergy are strong operators in the utility space and it is quite difficult to pick a clear winner among the two when analyzed in terms of most parameters. The companies, carrying a similar Zacks Rank, witnessed the Zacks Consensus Estimate for 2018 move up in the past 30 days.

However, Ameren seems to have edged past Entergy, courtesy of a lower debt-to-capital level compared with the industry and a better year-over-year revision in earnings per share.

Despite a marginal difference between these high-quality utilities, our verdict tilts toward Ameren.

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