Currently, the global economy is facing a crisis due to the outbreak of coronavirus or COVID- 19. Investors are for now keeping on the sidelines given the volatile market conditions. In this scenario, Fed reduced the interest rates by 1%, which takes the current rate to 0-0.25%.
Amid this situation, Utilities companies across the United States are operating relentlessly to provide 24X7 essential services, including electricity, water and natural gas to millions of customers.
Investors can consider stocks from utilities sector as it is less affected by the economic disruption and are considered as safe investment options.
Though returns from the overall sector are declining, Utilities players are staying afloat on the back of dividend payouts and share buybacks.
In this article, we run a comparative analysis on two prominent electric power utilities — Dominion Energy, Inc. (D - Free Report) and NextEra Energy, Inc (NEE - Free Report) — to ascertain which is a better option to hold on.
Both the stocks currently carry a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.
Dominion Energy has a market capitalization of $67.26 billion, while the same for NextEra Energy is $103 billion.
In the past 12 months, NextEra Energy's shares have increased 7.9% against the sector's decline of 26.2%. Shares of Dominion Energy have lost 4.3%.
Long-Term Earnings Growth and Surprise Trend
NextEra Energy’s long-term (3 to 5 years) earnings are expected to improve 7.70% compared with 4.70% for Dominion Energy in the same time frame.
NextEra Energy and Dominion Energy have trailing four-quarter positive earnings surprise of 2.83% and 1.08%, on average, respectively.
The Zacks Consensus Estimate for Dominion Energy’s 2020 earnings is pegged at $4.35 on revenues of $17.71 billion. This implies 2.59% and 6.89% increase of the bottom and the top line, respectively, from the year-ago reported figures.
The Zacks Consensus Estimate for NextEra Energy’s 2020 earnings is pegged at $9.05 on revenues of $20.34 billion. This implies 8.12% and 5.92% increase of the bottom and the top line, respectively, from the year-ago reported figures.
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 Dominion Energy and NextEra Energy is 12.05% and 10.30%, respectively. The companies outperformed the industry’s ROE of 9.68%.
The debt-to-capital is a good indicator of the financial position of a company. The indicator shows how much debt is used to run the business. NextEra Energy has a debt-to-capital of 47.90% compared with the industry’s 50.95%. Meanwhile, Dominion Energy has a debt-to-capital of 49.85%.
Utility companies generally distribute dividends. Currently, the dividend yield for NextEra Energy is at 2.66%. Dominion Energy’s dividend yield is 4.68% compared with the industry’s 2.66%.
Even though the companies have wide operations in the United States, from the above comparisons it is quite evident that NextEra Energy is a better utility stock to retain in your portfolio.
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