ETR Or ES: Which Electric Utility Stock Should You Invest In?

Most companies housed within the Zacks Utility – Electric Power industry are regulated and capital intensive. These companies are involved in the generation, transmission, distribution and sale of electricity to residential, commercial as well as industrial customers. Demand for their services remains stable regardless of economic cycles, which makes them safe investment options.

Utility operations require consistent investment to upgrade, maintain and replace older wires and electric poles as well as power stations. Hence, utility firms depend on the credit market for funds to carry on upgradation apart from internal sources. After raising interest rates nine times since the first hike in December 2015, the Fed cut interest rates thrice in 2019. The decline in rates will lower capital servicing expenses and have a positive impact on margins.

Currently, this industry is undergoing transition with companies striving to reduce carbon emission and focusing on electricity generation from clean sources. Per a recent release by the U.S. Energy Information Administration (EIA), U.S. electric power sector generation from renewable sources other than hydropower — principally wind and solar — will rise from 408 billion kilowatthours (kWh) in 2019 to 466 billion kWh in 2020.

Moreover, companies in the utility industry are focusing on adding energy storage projects to their portfolio. These companies are investing in battery storage devices that will help in the transition toward usage of clean sources and boost usage of renewable energy as fuel sources. This will provide support to the grid during peak demand periods.

In this write up, we run a comparative analysis on two Zacks Utility - Electric Power industry stocks — Entergy Corporation (NYSE:ETR) and Eversource Energy (NYSE:ES) — to ascertain a better utility stock going into 2020.

Entergy, currently carrying a Zacks Rank #2 (Buy), has a market capitalization of $23.28 billion. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Eversource Energy, also carrying a Zacks Rank #2, has a market capitalization of $26.56 billion.

Price Performance

In the past 12 months, shares of Entergy and Eversource Energy have gained 33.8% and 20.1%, respectively, compared with the industry’s growth of 7.1%.

ONE YEAR

Long-Term Earnings Growth and Surprise Trend

Earnings of Entergy and Eversource Energy are expected to improve 7% and 5.63%, respectively, in the long term (three to five years).

Entergy and Eversource Energy outpaced the Zacks Consensus Estimate in the trailing four quarters and recorded an average positive earnings surprise of 4.79% and 2.39%, 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 Entergy and Eversource Energy was 11.13% and 9.28%, respectively. Entergy outperformed the industry’s ROE of 9.47%.

Dividend Yield

Utility companies generally distribute dividends. Currently, the dividend yield for Entergy is at 3.18%, higher than 2.61% for Eversource Energy. Entergy’s dividend yield is better than the industry’s 2.94%. Both companies outperformed the S&P 500 index’s 1.84%.

Outcome

The companies provide quality services to customers as well as have plans to invest heavily to upgrade and strengthen their infrastructure. Markedly, it is quite evident from the above comparisons that Entergy is a better utility pick.

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