As Utilities provide basic services and are less affected by economic fluctuations, this is the most stable sector for investment.Regulated and domestic-focused utility companies are mature, fundamentally strong and focus on domestic as well as industrial usages.
Utility operation is capital intensive as consistent investment is required for infrastructural upgrades and maintenance toprovide uninterrupted 24x7 services to customers.
Apart from internal sources of funds, utilities depend on the credit market for funds to sustain such activities.Steady performance, stable earnings and cash flow enable these companies to reward investors through regular dividends.
In this write up, we run a comparative analysis on two electric power utilities — Dominion Energy Inc. (D - Free Report) and Duke Energy Corporation (DUK - Free Report) — to figure which stock should be retained now.
Dominion Energy, currently carrying a Zacks Rank #3 (Hold), has a market capitalization of $60.90 billion. You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.
Duke Energy Corporation, also carrying a Zacks Rank #3, has a market capitalization of $65.84 billion.
In the past 12 months, shares of Dominion Energy have gained 8.6% while the same for Duke Energy have improved 16.5%. The industry rose 14.1% over the same period.
Long-Term Earnings Growth and Surprise Trend
Dominion Energy’s long-term (3 to 5 years) earnings are expected to improve 5.44% compared with Duke Energy’s 5.01% for the same time frame.
Dominion Energy outpaced the Zacks Consensus Estimate in three of the trailing four quarters with an average positive earnings surprise of 5.59%. Duke Energy beat the Zacks Consensus Estimate in two of the trailing four quarters with an average positive earnings surprises being 0.95%.
Return on Equity (ROE)
ROE is a measure of a company’s efficiency in utilizing shareholder’s funds. ROE for the trailing 12 months for Duke Energy and Dominion Energy is 7.80% and 12.85%, respectively. Dominion Energy outperformed the industry’s ROE of 9.18%.
The debt-to-capital ratio is a good indicator of a company’s financial position. The indicator shows how much debt is used to run the business. Dominion Energy has a debt-to-capital ratio of 58.55% compared with the industry’s 50.42%. Meanwhile, Duke Energy has a debt-to-capital ratio of 53.84%.
The Zacks Consensus Estimate of Duke Energy for 2019 earnings per share (EPS) moved up 0.2% in the past 30 days to $4.97 per share. The Zacks Consensus Estimate for Dominion Energy’s 2019 EPS is constant at $4.20 in the past 30 days.
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 bullish Zacks Rank are the best investment options. Dominion Energy has a VGM Score of C, while Duke Energy has an impressive VGM Score of B.
Our comparative analysis shows that Dominion Energy holds an edge over Duke Energy in terms oflong-term growth andsurprise trend as well as ROE, However, Duke Energy has an edge in terms of price performance, debt-to-capital ratio, estimate movement and VGM score. From the above comparisons it is quite evident that Duke Energy is a better utility stock to retain.
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