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

Dividends

Pinnacle West Capital pays an annual dividend of $2.78 per share and has a dividend yield of 3.5%. Southern pays an annual dividend of $2.32 per share and has a dividend yield of 5.2%. Pinnacle West Capital pays out 60.0% of its earnings in the form of a dividend. Southern pays out 414.3% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. Pinnacle West Capital has increased its dividend for 6 consecutive years and Southern has increased its dividend for 16 consecutive years. Southern is clearly the better dividend stock, given its higher yield and longer track record of dividend growth.

Profitability

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

Net Margins Return on Equity Return on Assets
Pinnacle West Capital 14.67% 10.31% 3.16%
Southern 2.59% 10.81% 2.50%

Analyst Recommendations

This is a breakdown of recent ratings for Pinnacle West Capital and Southern, as reported by MarketBeat.com.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Pinnacle West Capital 2 8 0 0 1.80
Southern 5 5 7 0 2.12

Pinnacle West Capital currently has a consensus target price of $85.00, indicating a potential upside of 7.30%. Southern has a consensus target price of $50.79, indicating a potential upside of 13.26%. Given Southern’s stronger consensus rating and higher probable upside, analysts plainly believe Southern is more favorable than Pinnacle West Capital.

Institutional and Insider Ownership

82.7% of Pinnacle West Capital shares are owned by institutional investors. Comparatively, 53.7% of Southern shares are owned by institutional investors. 0.7% of Pinnacle West Capital shares are owned by company insiders. Comparatively, 1.0% of Southern shares are owned by company insiders. Strong institutional ownership is an indication that large money managers, hedge funds and endowments believe a company is poised for long-term growth.

Volatility and Risk

Pinnacle West Capital has a beta of 0.38, suggesting that its stock price is 62% less volatile than the S&P 500. Comparatively, Southern has a beta of 0.14, suggesting that its stock price is 86% less volatile than the S&P 500.

Earnings & Valuation

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

Gross Revenue Price/Sales Ratio Net Income Earnings Per Share Price/Earnings Ratio
Pinnacle West Capital $3.50 billion 2.53 $442.03 million $4.63 17.11
Southern $19.90 billion 2.26 $2.49 billion $0.56 80.07

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

Summary

Southern beats Pinnacle West Capital on 10 of the 17 factors compared between the two stocks.

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.

About Southern

The Southern Company (Southern Company) is a holding company. The Company owns all of the stock of the traditional electric operating companies and the parent entities of Southern Power Company (Southern Power) and Southern Company Gas, and owns other direct and indirect subsidiaries. The Company’s segments include Gas distribution operations, Gas marketing services, Wholesale gas services, Gas midstream operations and All other. The Gas distribution operations segment includes natural gas local distribution utilities that construct, manage, and maintain intrastate natural gas pipelines and gas distribution facilities in seven states. The Gas marketing services segment provides natural gas commodity and related services to customers markets that provide for customer choice. The Wholesale gas services segment engages in natural gas storage and gas pipeline arbitrage. The Gas midstream operations consist primarily of gas pipeline investments, with storage and fuels.

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