Utilities is one of the most stable sectors for investment, as it deals with basic services and is not affected by the vagaries of the economy. Utility companies are preferred picks for investors owing to stable operations and their capability to reward shareholders with regular dividend pay outs.
Utility operations require consistent investment to upgrade, maintain and replace older wires and electric poles as well as power stations. These stocks are highly regulated at the federal and state levels. Hence, utility firms depend on the credit market for funds to carry on upgradation activities apart from internal sources. The recent rate reductions by the Fed will lower capital servicing expenses and have a positive impact on margins.
Recently, players in Utility - Electric Power industry are focused on generating electricity from clean sources and add energy storage projects to their portfolio. However, expenses related to maintenance and replacement of aging infrastructure is a concern.
In this write up, we run a comparative analysis on two Zacks Utility - Electric Power industry stocks — FirstEnergy Corporation (FE - Free Report) and Edison International (EIX - Free Report) — to ascertain a better buying option currently. Steady performance along with stable earnings and cash flow enable these companies to reward investors through regular dividend pay outs.
FirstEnergy, currently carrying a Zacks Rank #2 (Buy), has a market capitalization of $25.77 billion. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Edison International, also carrying a Zacks Rank #2, has a market capitalization of $24.78 billion.
In the past 12 months, shares of FirstEnergy and Edison International have gained 23.6% and 21.3%, respectively, compared with the industry’s growth of 7.2%.
Long-Term Earnings Growth and Surprise Trend
Earnings of FirstEnergy and Edison International are expected to improve 6% and 5.27%, respectively, in the long term (three to five years).
FirstEnergy and Edison International outpaced the Zacks Consensus Estimate in the trailing four quarters and recorded average positive earnings surprise of 2.87% and 0.09%, 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 Edison International and FirstEnergy was 11.98% and 19.21%, respectively. Both the companies outperformed the industry’s ROE of 9.47%.
Utility companies generally distribute dividends. Currently, the dividend yield for FirstEnergy is at 3.19%, lower than 3.55% for Edison International. Both the companies’ dividend yield is better than the industry’s 2.93% and the S&P 500 index’s 1.77%.
The companies are providing quality services to customers as well as have plans to invest heavily to upgrade and strengthen their infrastructure. The additions and the expansion of infrastructure will enable these two utilities to serve their expanding customer base, more efficiently.
Markedly, it is quite evident from the above comparisons that FirstEnergy is a better investment option.
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