Utility electric power companies are generally focused on domestic services. Demand for utilities is independent of market volatility. Stability of operations and capability to reward shareholders with regular dividend payments makes them appropriate picks for investors.
Utility operation is capital intensive as constant investment is required to upgrade, maintain and replace existing infrastructures. However, funds generated from internal sources are not sufficient to conduct long-term projects and the utilities have to depend on credit market for funds.
The Fed rate has been raised for the ninth time since the first hike that was announced in December 2015. Rise in interest cost will raise the cost of capital for utilities that might limit their ability to pay dividends and buy back shares.
However, cost control, new electric rates, customer growth and stable demand continue to enable the utility sector sustain operational stability.
In this article we do a comparative analysis on two electric utility stocks — Pinnacle West Capital Corporation (PNW - Free Report) and IDACORP, Inc. (IDA - Free Report) — to ascertain the better performer and the most suitable buying option right now.
Pinnacle West Capital, currently carrying a Zacks Rank #2 (Buy), has a market capitalization of $9.49 billion. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
IDACORP, also carrying a Zacks Rank #2, has a market capitalization of $4.72 billion.
In the past 12 months, shares of Pinnacle West Capital and IDACORP have gained 8.7% and 14.4%, respectively. The industry recorded a rise of 4.5% over the same period.
Long-Term Earnings Growth and Surprise Trend
Earnings of Pinnacle West Capital and IDACORP are expected to improve 4.47% and 2.57% in the long term (three to five years), respectively.
Pinnacle West Capital and IDACORP outpaced the Zacks Consensus Estimate and pulled off average positive earnings surprise of 6.15% and 11.69% in the last four quarters, respectively.
Return on Equity (ROE)
ROE is a measure of a company’s efficiency in utilizing shareholders’ funds. ROE in the trailing 12 months for Pinnacle West Capital and IDACORP was 9.68% and 10.43%, respectively. Both the companies outperformed the industry’s ROE of 9.35%.
The debt-to-capital ratio is a good indicator of the financial position of a company. The indicator shows how much debt is used to run the business. Pinnacle West Capital has a debt-to-capital ratio of 44.99% compared with the industry’s 49.40%. Meanwhile, IDACORP has a debt-to-capital ratio of 43.60%.
Utility companies generally distribute dividends. Currently, the dividend yield for Pinnacle West Capital is at 3.48%, higher than 2.69% for IDACORP. Pinnacle West Capital’s dividend yield is better than the industry’s 3.14%.
Both the companies are providing quality services to customers. Though Pinnacle West Capital has an edge in some of the above-mentioned parameters, our verdict goes to IDACORP considering better price performance, surprise trend, return on equity and debt-to-capital ratio.
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