Head to Head Analysis: Otter Tail (OTTR) and The AES (AES)

Otter Tail (NASDAQ: OTTR) and The AES (NYSE:AES) are both utilities companies, but which is the superior business? We will compare the two companies based on the strength of their earnings, dividends, risk, institutional ownership, valuation, profitability and analyst recommendations.

Valuation and Earnings

This table compares Otter Tail and The AES’s gross revenue, earnings per share (EPS) and valuation.

Gross Revenue Price/Sales Ratio Net Income Earnings Per Share Price/Earnings Ratio
Otter Tail $803.54 million 2.32 $62.32 million $1.80 26.22
The AES $13.59 billion 0.52 -$1.13 billion ($1.17) -9.15

Otter Tail has higher earnings, but lower revenue than The AES. The AES is trading at a lower price-to-earnings ratio than Otter Tail, indicating that it is currently the more affordable of the two stocks.

Insider and Institutional Ownership

41.1% of Otter Tail shares are owned by institutional investors. Comparatively, 93.8% of The AES shares are owned by institutional investors. 1.4% of Otter Tail shares are owned by insiders. Comparatively, 1.1% of The AES shares are owned by insiders. Strong institutional ownership is an indication that endowments, large money managers and hedge funds believe a company will outperform the market over the long term.

Analyst Recommendations

This is a summary of current ratings for Otter Tail and The AES, as provided by MarketBeat.com.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Otter Tail 0 2 1 0 2.33
The AES 0 3 2 0 2.40

Otter Tail presently has a consensus target price of $41.00, suggesting a potential downside of 13.14%. The AES has a consensus target price of $13.00, suggesting a potential upside of 21.50%. Given The AES’s stronger consensus rating and higher probable upside, analysts plainly believe The AES is more favorable than Otter Tail.

Dividends

Otter Tail pays an annual dividend of $1.28 per share and has a dividend yield of 2.7%. The AES pays an annual dividend of $0.48 per share and has a dividend yield of 4.5%. Otter Tail pays out 71.1% of its earnings in the form of a dividend. The AES pays out -41.0% of its earnings in the form of a dividend. Both companies have healthy payout ratios and should be able to cover their dividend payments with earnings for the next several years. The AES has raised its dividend for 4 consecutive years. The AES is clearly the better dividend stock, given its higher yield and longer track record of dividend growth.

Profitability

This table compares Otter Tail and The AES’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Otter Tail 8.53% 10.47% 3.68%
The AES -5.43% 15.14% 2.47%

Risk and Volatility

Otter Tail has a beta of 0.82, indicating that its share price is 18% less volatile than the S&P 500. Comparatively, The AES has a beta of 1.21, indicating that its share price is 21% more volatile than the S&P 500.

Summary

The AES beats Otter Tail on 10 of the 17 factors compared between the two stocks.

Otter Tail Company Profile

Otter Tail Corporation is a holding company. The Company operates through three segments: Electric, Manufacturing and Plastics. The Electric segment includes the production, transmission, distribution and sale of electric energy in Minnesota, North Dakota and South Dakota by Otter Tail Power Company (OTP). The Manufacturing segment consists of businesses in manufacturing activities, such as contract machining, metal parts stamping, fabrication and painting, and production of material and handling trays and horticultural containers. These businesses have manufacturing facilities in Georgia, Illinois and Minnesota and sell products primarily in the United States. The Plastics segment consists of businesses producing polyvinyl chloride (PVC) pipe at plants in North Dakota and Arizona. The PVC pipe is sold primarily in the upper Midwest and Southwest regions of the United States. The Company’s manufacturing and plastic pipe businesses are owned by its subsidiary, Varistar Corporation.

The AES Company Profile

The AES Corporation is a holding company. The Company, through its subsidiaries and affiliates, operates a diversified portfolio of electricity generation and distribution businesses. It is organized into six strategic business units (SBUs): the United States; Andes; Brazil; Mexico, Central America and the Caribbean (MCAC); Europe, and Asia. As of December 31, 2016, its United States SBU had 18 generation facilities and two integrated utilities in the United States. As of December 31, 2016, its Andes SBU had generation facilities in three countries. Its Brazil SBU has generation and distribution businesses, Eletropaulo and Tiete. As of December 31, 2016, its MCAC SBU had a portfolio of distribution businesses and generation facilities, including renewable energy, in five countries. As of December 31, 2016, its Europe SBU had generation facilities in five countries. As of December 31, 2016, its Asia SBU had generation facilities in three countries.

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