Analyzing Pinnacle West Capital (PNW) & FirstEnergy (FE)

FirstEnergy (NYSE: FE) and Pinnacle West Capital (NYSE:PNW) are both mid-cap utilities companies, but which is the better stock? We will compare the two companies based on the strength of their institutional ownership, risk, valuation, analyst recommendations, earnings, dividends and profitability.

Institutional & Insider Ownership

82.3% of FirstEnergy shares are owned by institutional investors. Comparatively, 82.7% of Pinnacle West Capital shares are owned by institutional investors. 0.3% of FirstEnergy shares are owned by insiders. Comparatively, 0.7% of Pinnacle West Capital shares are owned by insiders. Strong institutional ownership is an indication that large money managers, endowments and hedge funds believe a stock will outperform the market over the long term.

Earnings and Valuation

This table compares FirstEnergy and Pinnacle West Capital’s revenue, earnings per share and valuation.

Gross Revenue Price/Sales Ratio Net Income Earnings Per Share Price/Earnings Ratio
FirstEnergy $14.56 billion 0.92 -$6.18 billion ($11.77) -2.57
Pinnacle West Capital $3.50 billion 2.55 $442.03 million $4.63 17.26

Pinnacle West Capital has lower revenue, but higher earnings than FirstEnergy. FirstEnergy is trading at a lower price-to-earnings ratio than Pinnacle West Capital, indicating that it is currently the more affordable of the two stocks.

Risk & Volatility

FirstEnergy has a beta of 0.25, indicating that its stock price is 75% less volatile than the S&P 500. Comparatively, Pinnacle West Capital has a beta of 0.38, indicating that its stock price is 62% less volatile than the S&P 500.

Profitability

This table compares FirstEnergy and Pinnacle West Capital’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
FirstEnergy -35.99% 19.29% 2.79%
Pinnacle West Capital 14.67% 10.31% 3.16%

Dividends

FirstEnergy pays an annual dividend of $1.44 per share and has a dividend yield of 4.8%. Pinnacle West Capital pays an annual dividend of $2.78 per share and has a dividend yield of 3.5%. FirstEnergy pays out -12.2% of its earnings in the form of a dividend. Pinnacle West Capital pays out 60.0% 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. FirstEnergy has raised its dividend for 6 consecutive years. FirstEnergy is clearly the better dividend stock, given its higher yield and longer track record of dividend growth.

Analyst Ratings

This is a summary of current recommendations and price targets for FirstEnergy and Pinnacle West Capital, as reported by MarketBeat.com.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
FirstEnergy 0 9 5 0 2.36
Pinnacle West Capital 2 8 0 0 1.80

FirstEnergy presently has a consensus target price of $35.38, suggesting a potential upside of 16.98%. Pinnacle West Capital has a consensus target price of $85.00, suggesting a potential upside of 6.36%. Given FirstEnergy’s stronger consensus rating and higher probable upside, equities analysts plainly believe FirstEnergy is more favorable than Pinnacle West Capital.

Summary

Pinnacle West Capital beats FirstEnergy on 9 of the 17 factors compared between the two stocks.

About FirstEnergy

FirstEnergy Corp. is a holding company. The Company is engaged in holding, directly or indirectly, all of the outstanding equity of its principal subsidiaries. Its segments include Regulated Distribution, Regulated Transmission, Competitive Energy Services (CES) and Corporate/Other. As of December 31, 2016, the Regulated Distribution segment distributed electricity through the Company’s 10 utility operating companies, serving approximately six million customers, and purchased power for its provider of last resort (POLR), standard offer service (SOS), standard offer service (SSO) and default service requirements in Ohio, Pennsylvania, New Jersey and Maryland. The Regulated Transmission segment transmits electricity through transmission facilities owned and operated by American Transmission Systems, Incorporated (ATSI) and Trans-Allegheny Interstate Line Company (TrAIL). The CES segment primarily supplies electricity to end use customers through retail and wholesale arrangements.

About Pinnacle West Capital

Pinnacle West Capital Corporation is a holding company that operates through its subsidiaries. The Company operates through regulated electricity segment, which consists of traditional regulated retail and wholesale electricity businesses and related activities, and includes electricity generation, transmission and distribution. It owned and leased 6,236 megawatt (MW) of regulated generation capacity and the Company held a mix of both long-term and short-term purchased power agreements for additional capacity, including agreements for the purchase of renewable energy, as of December 31, 2016. Its subsidiaries include Arizona Public Service Company, which is a vertically-integrated electric utility that provides retail or wholesale electric service to the State of Arizona, with the exceptions of about one-half of the Phoenix metropolitan area, the Tucson metropolitan area and Mohave County in northwestern Arizona.

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