Financial Survey: Pinnacle West Capital Corporation (PNW) versus The AES Corporation (NYSE:AES)

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

Institutional & Insider Ownership

93.2% of The AES Corporation shares are held by institutional investors. Comparatively, 84.2% of Pinnacle West Capital Corporation shares are held by institutional investors. 1.1% of The AES Corporation shares are held by insiders. Comparatively, 0.7% of Pinnacle West Capital Corporation shares are held by insiders. Strong institutional ownership is an indication that endowments, hedge funds and large money managers believe a company will outperform the market over the long term.

Risk and Volatility

The AES Corporation has a beta of 1.22, suggesting that its share price is 22% more volatile than the S&P 500. Comparatively, Pinnacle West Capital Corporation has a beta of 0.38, suggesting that its share price is 62% less volatile than the S&P 500.

Profitability

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

Net Margins Return on Equity Return on Assets
The AES Corporation -5.30% 15.86% 2.57%
Pinnacle West Capital Corporation 14.37% 10.20% 3.14%

Earnings and Valuation

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

Gross Revenue Price/Sales Ratio EBITDA Earnings Per Share Price/Earnings Ratio
The AES Corporation $14.05 billion 0.53 $3.58 billion ($1.14) -9.89
Pinnacle West Capital Corporation $3.53 billion 2.76 $1.53 billion $4.52 19.31

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

Analyst Recommendations

This is a breakdown of recent ratings and target prices for The AES Corporation and Pinnacle West Capital Corporation, as provided by MarketBeat.com.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
The AES Corporation 1 4 1 0 2.00
Pinnacle West Capital Corporation 1 9 0 0 1.90

The AES Corporation currently has a consensus target price of $13.00, indicating a potential upside of 15.25%. Pinnacle West Capital Corporation has a consensus target price of $83.13, indicating a potential downside of 4.78%. Given The AES Corporation’s stronger consensus rating and higher possible upside, equities research analysts clearly believe The AES Corporation is more favorable than Pinnacle West Capital Corporation.

Dividends

The AES Corporation pays an annual dividend of $0.48 per share and has a dividend yield of 4.3%. Pinnacle West Capital Corporation pays an annual dividend of $2.62 per share and has a dividend yield of 3.0%. The AES Corporation pays out -42.1% of its earnings in the form of a dividend. Pinnacle West Capital Corporation pays out 58.0% 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 Corporation has increased its dividend for 4 consecutive years and Pinnacle West Capital Corporation has increased its dividend for 5 consecutive years. The AES Corporation is clearly the better dividend stock, given its higher yield and lower payout ratio.

Summary

The AES Corporation beats Pinnacle West Capital Corporation on 11 of the 17 factors compared between the two stocks.

The AES Corporation 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.

Pinnacle West Capital Corporation Company Profile

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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