Financial Analysis: Covanta (CVA) vs. MGE Energy (MGEE)

Covanta (NYSE: CVA) and MGE Energy (NASDAQ:MGEE) are both small-cap oils/energy companies, but which is the superior stock? We will contrast the two companies based on the strength of their institutional ownership, dividends, analyst recommendations, profitability, risk, valuation and earnings.

Earnings & Valuation

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This table compares Covanta and MGE Energy’s top-line revenue, earnings per share and valuation.

Gross Revenue Price/Sales Ratio Net Income Earnings Per Share Price/Earnings Ratio
Covanta $1.75 billion 1.08 $57.00 million ($0.37) -38.92
MGE Energy $563.10 million 3.50 $97.60 million $2.23 25.49

MGE Energy has lower revenue, but higher earnings than Covanta. Covanta is trading at a lower price-to-earnings ratio than MGE Energy, indicating that it is currently the more affordable of the two stocks.

Dividends

Covanta pays an annual dividend of $1.00 per share and has a dividend yield of 6.9%. MGE Energy pays an annual dividend of $1.29 per share and has a dividend yield of 2.3%. Covanta pays out -270.3% of its earnings in the form of a dividend. MGE Energy pays out 57.8% 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. MGE Energy has increased its dividend for 42 consecutive years. Covanta is clearly the better dividend stock, given its higher yield and lower payout ratio.

Institutional and Insider Ownership

91.7% of Covanta shares are held by institutional investors. Comparatively, 39.1% of MGE Energy shares are held by institutional investors. 10.9% of Covanta shares are held by company insiders. Comparatively, 0.2% of MGE Energy shares are held by company insiders. Strong institutional ownership is an indication that large money managers, endowments and hedge funds believe a company will outperform the market over the long term.

Risk and Volatility

Covanta has a beta of 0.69, indicating that its stock price is 31% less volatile than the S&P 500. Comparatively, MGE Energy has a beta of 0.3, indicating that its stock price is 70% less volatile than the S&P 500.

Profitability

This table compares Covanta and MGE Energy’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Covanta 3.25% -13.02% -1.10%
MGE Energy 17.33% 10.28% 4.26%

Analyst Ratings

This is a breakdown of current ratings and target prices for Covanta and MGE Energy, as provided by MarketBeat.com.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Covanta 0 1 5 0 2.83
MGE Energy 0 1 0 0 2.00

Covanta presently has a consensus price target of $17.67, indicating a potential upside of 22.69%. Given Covanta’s stronger consensus rating and higher possible upside, equities research analysts plainly believe Covanta is more favorable than MGE Energy.

Summary

Covanta beats MGE Energy on 9 of the 17 factors compared between the two stocks.

About Covanta

Covanta Holding Corporation, through its subsidiaries, provides waste and energy services to municipal entities primarily in the United States and Canada. It owns and operates infrastructure for the conversion of waste to energy, as well as engages in related waste transport and disposal, and other renewable energy production businesses. The company disposes waste and generates electricity and/or steam; sells metal recovered during the energy-from-waste (EfW) process; and offers waste management solutions, such as site clean-up, wastewater treatment, transportation and logistics, recycling, and depackaging. It owns and operates 43 EfW facilities; and 5 additional energy generation facilities, including wood biomass and hydroelectric renewable energy production facilities in North America. The company also owns and operates 17 transfer stations, 19 material processing facilities, 1 regional metals recycling facility, and 4 landfills. Covanta Holding Corporation has a strategic partnership with the Green Investment Group Limited to develop, fund, and own EfW projects in Ireland and the United Kingdom. The company was formerly known as Danielson Holding Corporation and changed its name to Covanta Holding Corporation in September 2005. Covanta Holding Corporation was founded in 1960 and is headquartered in Morristown, New Jersey.

About MGE Energy

MGE Energy, Inc., through its subsidiaries, operates as a public utility holding company primarily in Wisconsin. It operates through five segments: Regulated Electric Utility Operations; Regulated Gas Utility Operations; Nonregulated Energy Operations; Transmission Investments; and All Other. The company generates, purchases, and distributes electricity; owns or leases electric generation facilities located in Wisconsin and Iowa; and plans, constructs, operates, maintains, and expands transmission facilities to provide transmission services. It also generates electricity from coal, natural gas, and renewable energy sources, as well as purchases power under short and long-term commitments. As of December 31,, 2017, the company distributed electricity to 151,000 customers in Dane County, Wisconsin, including the City of Madison; and purchased and distributed natural gas to 158,000 customers in seven south-central and western Wisconsin counties. MGE Energy, Inc. was founded in 1855 and is based in Madison, Wisconsin.

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