Electric utility stocks provide investors with stable earnings and performance along with consistent cash rewards for a long term. Thus investment in these stocks is considered safe.
Generally regulated and domestic electric utility companies require constant investments for infrastructural upgrades and maintenance. Apart from internal sources, utilities depend on the credit market for funds to sustain these activities. Recent rate cuts since July has enabled these companies to borrow funds at lower rates.
Currently, the industry is going through a transition phase with companies aiming to reduce carbon emission. Moreover, these companies are inclined toward the addition of energy storage projects to their portfolio. Industry participants are investing in battery storage devices that will facilitate the transition to usage of clean sources and boost utilization of renewable energy as fuel sources. Such initiatives bode well during peak demand periods.
In this article, we run a comparative analysis of two electric power utilities — DTE Energy Company (DTE - Free Report) and CMS Energy Corporation (CMS - Free Report) — to ascertain the better stock to hold on.
The stocks currently carry a Zacks Rank #3 (Hold). DTE Energy and CMS Energy have market capitalization of $24.41 billion and $17.90 billion, respectively. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
In the past 12 months, shares of CMS Energy have returned 27.8% compared with the industry’s rise of 22% and DTE Energy’s increase of 17.3%.
The Zacks Consensus Estimate for CMS Energy’s 2020 earnings is pegged at $2.64 per share on revenues of $7.14 billion. The bottom-line figure suggests a 7.43% year-over-year increase. The same for the top line calls for a 2.28% rise on a year-on-year basis.
The consensus mark for 2020 earnings for DTE Energy is pegged at $6.53 per share on revenues of $14.16 billion. The bottom-line estimate suggests a 5.28% year-over-year increase. The same for the top line implies a 5.16% increase year on year.
DTE Energy’s long-term (3 to 5 years) earnings are expected to improve 6% compared with CMS Energy’s 6.10% for the same time frame.
Return on Equity (ROE)
ROE is a measure of a company’s efficiency in utilizing shareholders’ funds. ROE for the trailing 12-months for DTE Energy and CMS Energy is 9.93% and 12.80%, respectively. The industry’s ROE is at 9.47%. Clearly, CMS Energy has an edge over DTE Energy.
Currently, the dividend yield for CMS Energy is at 2.43%, lower than 3.14% for DTE Energy. Both the companies’ dividend yield is better than the Zacks S&P 500 composite’s 1.78%.
This metric measures the ability of a company to meet its short-term debt obligations, efficiently. In other words, it is the ratio of the current level of total assets versus the current level of liabilities. Here, CMS Energy is a winner with a current ratio of 1.06, which is better than DTE Energy’s reading of 0.77.
Our comparative analysis shows that DTE Energy an edge over CMS Energy in terms of growth projections and dividend yield. Nevertheless, CMS Energy takes the cake in terms of price movement, long-term earnings growth, ROE measure and current ratio. It is clear that CMS Energy is a better utility stock than DTE Energy.
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