ETR or AEE: Which Utility Electric Power Stock Is the Better Option?

Utilities continue to benefit from various favorable factors, such as new electric rates, customer additions, cost management and the implementation of energy-efficiency programs. Also, the ongoing investments to improve the resiliency of electric infrastructure against extreme weather conditions and the ongoing transition to cost-effective, renewable energy sources to produce electricity aid the power industry.

Utility companies operating in the United States are taking measures to further strengthen their infrastructure, including the process of generation, transmission, distribution, storage and sale of electricity to customers.

Regardless of economic cycles, there is a relatively constant demand for utilities' services, with the exception of significant weather variations. In the wake of hurricane disasters, companies are currently working to restore electricity for their customers. Significant repair work is still ongoing in the areas where consumers have been affected the most.

Due to their capital-intensive nature, utilities need a steady stream of funding for new asset acquisitions and infrastructure improvements. In September 2024, the U.S. Federal Reserve lowered the borrowing rate by 50 basis points. The rate decline should improve the prospects of capital-intensive utilities as their capital servicing costs will go down, boosting margins and profitability.

The U.S. electric power sector is gradually moving toward cleaner sources of energy to produce electricity. Per a U.S. Energy Information Administration (“EIA”) report, the annual share of U.S. electricity generation from renewable energy sources will be 23% in 2024 and 25% in 2025. EIA also expects residential electricity sales to increase 3% in 2024 and 4% in 2025. Similarly, electricity demand in the commercial and industrial sectors is expected to grow a combined 2% in 2024 and 2025.

In this blog, we run a comparative analysis on two Zacks Utility — Electric Power companies — Entergy Corporation ETR and Ameren Corporation AEE — to decide which one is a better pick for your portfolio.

Both the companies carry a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

ETR has a market capitalization of $28.2 billion, while AEE has $23.28 billion.

Growth Projections for Entergy & Ameren

The Zacks Consensus Estimate for ETR’s 2024 earnings is pegged at $7.22 per share on revenues of $12.2 billion. This indicates year-over-year bottom-line growth of 6.7% and revenue increase of 0.5%.

The Zacks Consensus Estimate for AEE’s 2024 earnings is pinned at $4.62 per share on revenues of $7.64 billion. This implies year-over-year bottom-line growth of 5.5% and revenue improvement of 1.8%.

ETR & AEE Stock’s Price Performance

In the past three months, ETR’s shares have risen 21.6% compared with the industry's growth of 7.1%. Shares of AEE have risen 18% in the same time frame.

 

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ETR & AEE’s Return on Equity (ROE)

ROE is a measure of a company’s efficiency in utilizing shareholders’ funds. The current ROE for Entergy and Ameren is 10.1% and 10.2%, respectively, compared with the sector’s 9.91%.

ETR & AEE’s Solvency

The times interest earned (TIE) ratio for ETR is 2, and the same for AEE is 3.2. Since both companies have a TIE ratio exceeding one, it indicates that they have enough financial flexibility to meet their near-term interest obligations.

ETR & AEE’s Dividend Yield

Utility companies generally distribute dividends and increase shareholders’ value. Currently, the dividend yield for Entergy is 3.43%, and the same for Ameren is 3.07%. The dividend yields of these companies are better than the Zacks S&P 500 composite’s average of 1.23%.

Outcome

Both Entergy and Ameren are evenly matched and good picks for your portfolio. They have the potential to improve further from their current position and serve the needs of their growing customer base. However, our choice at this moment is ETR, given its better earnings growth, dividend yield and price performance than AEE.

 

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Ameren Corporation (AEE): Free Stock Analysis Report
 
Entergy Corporation (ETR): Free Stock Analysis Report

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