Financial Review: RWE (OTCMKTS:RWEOY) & Allete (NYSE:ALE)

Allete (NYSE:ALE) and RWE (OTCMKTS:RWEOY) are both utilities companies, but which is the better stock? We will contrast the two companies based on the strength of their earnings, profitability, institutional ownership, analyst recommendations, valuation, dividends and risk.

Institutional and Insider Ownership

76.6% of Allete shares are held by institutional investors. 0.3% of Allete shares are held by insiders. Strong institutional ownership is an indication that hedge funds, large money managers and endowments believe a stock is poised for long-term growth.

Earnings and Valuation

This table compares Allete and RWE”s top-line revenue, earnings per share and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
Allete	$1.53 billion	2.58	$179.30 million	$2.85	23.83
RWE	$26.22 billion	N/A	$5.56 billion	$3.50	14.88

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

Risk & Volatility

Allete has a beta of 0.83, suggesting that its stock price is 17% less volatile than the S&P 500. Comparatively, RWE has a beta of 0.66, suggesting that its stock price is 34% less volatile than the S&P 500.

Dividends

Allete pays an annual dividend of $2.92 per share and has a dividend yield of 4.3%. RWE pays an annual dividend of $0.88 per share and has a dividend yield of 1.7%. Allete pays out 102.5% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. RWE pays out 25.1% of its earnings in the form of a dividend. Allete has increased its dividend for 15 consecutive years. Allete is clearly the better dividend stock, given its higher yield and longer track record of dividend growth.

Profitability

This table compares Allete and RWE’s net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
Allete	11.04%	5.08%	2.47%
RWE	10.82%	5.42%	2.01%

Analyst Ratings

This is a breakdown of recent ratings and price targets for Allete and RWE, as provided by MarketBeat.com.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
Allete	0	0	1	0	3.00
RWE	0	2	3	0	2.60

RWE has a consensus price target of $53.30, suggesting a potential upside of 2.34%. Given RWE’s higher possible upside, analysts plainly believe RWE is more favorable than Allete.

Summary

Allete beats RWE on 9 of the 16 factors compared between the two stocks.

About Allete

ALLETE, Inc. operates as an energy company. The company operates through Regulated Operations, ALLETE Clean Energy, and Corporate and Other segments. It generates electricity from coal-fired, biomass co-fired / natural gas, hydroelectric, wind, and solar. In addition, the company provides regulated utility electric services in northwestern Wisconsin to approximately 15,000 electric customers, 13,000 natural gas customers, and 10,000 water customers, as well as regulated utility electric services in northeastern Minnesota to approximately 150,000 retail customers and 14 non-affiliated municipal customers. Further, it owns and maintains electric transmission assets in Wisconsin, Michigan, Minnesota, and Illinois. Additionally, the company focuses on developing, acquiring, and operating clean and renewable energy projects; and owns and operates approximately 1,200 megawatts of wind energy generation facility, as well as involved in the coal mining operations in North Dakota; and real estate investment activities in Florida. It owns and operates 162 substations with a total capacity of 9,980 megavolt amperes. The company serves taconite mining, paper, pulp and secondary wood products, pipeline, and other industries. The company was formerly known as Minnesota Power, Inc. and changed its name to ALLETE, Inc. in May 2001. ALLETE, Inc. was incorporated in 1906 and is headquartered in Duluth, Minnesota.

About RWE

RWE Aktiengesellschaft generates and supplies electricity from renewable and conventional sources in Germany, the United Kingdom, rest of Europe, North America, and internationally. It operates through five segments: Offshore Wind; Onshore Wind/Solar; Hydro/Biomass/Gas; Supply & Trading; and Coal/Nuclear. The company generates wind, hydro, solar, nuclear, gas, and biomass electricity. It also trades in electricity, gas, and energy commodities; operates gas storage facilities; and engages in battery storage activities. The company serves commercial, industrial, and corporate customers. RWE Aktiengesellschaft was founded in 1898 and is headquartered in Essen, Germany.