Pinnacle West Capital (NYSE:PNW) & FirstEnergy (NYSE:FE) Critical Analysis

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

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	7.40%	11.07%	2.73%
Pinnacle West Capital	11.52%	8.99%	2.08%

Earnings & 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	$15.09 billion	1.78	$1.02 billion	$2.08	22.32
Pinnacle West Capital	$5.34 billion	2.36	$616.53 million	$5.22	19.90

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

Risk and Volatility

FirstEnergy has a beta of 0.39, indicating that its stock price is 61% less volatile than the S&P 500. Comparatively, Pinnacle West Capital has a beta of 0.48, indicating that its stock price is 52% less volatile than the S&P 500.

Insider and Institutional Ownership

89.4% of FirstEnergy shares are held by institutional investors. Comparatively, 91.5% of Pinnacle West Capital shares are held by institutional investors. 0.1% of FirstEnergy shares are held by company insiders. Comparatively, 0.2% of Pinnacle West Capital shares are held by company insiders. Strong institutional ownership is an indication that endowments, hedge funds and large money managers believe a stock will outperform the market over the long term.

Dividends

FirstEnergy pays an annual dividend of $1.86 per share and has a dividend yield of 4.0%. Pinnacle West Capital pays an annual dividend of $3.70 per share and has a dividend yield of 3.6%. FirstEnergy pays out 89.4% 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 pays out 70.9% of its earnings in the form of a dividend. FirstEnergy has increased its dividend for 3 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 breakdown of current ratings 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	4	8	0	2.67
Pinnacle West Capital	0	11	5	0	2.31

FirstEnergy presently has a consensus target price of $50.77, indicating a potential upside of 9.36%. Pinnacle West Capital has a consensus target price of $103.77, indicating a potential downside of 0.13%. Given FirstEnergy’s stronger consensus rating and higher probable upside, analysts plainly believe FirstEnergy is more favorable than Pinnacle West Capital.

Summary

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

About FirstEnergy

FirstEnergy Corp., through its subsidiaries, generates, transmits, and distributes electricity in the United States. It operates through Regulated Distribution and Regulated Transmission segments. The company owns and operates coal-fired, nuclear, hydroelectric, wind, and solar power generating facilities. It operates 24,080 circuit miles of overhead and underground transmission lines; and electric distribution systems, including 274,518 miles of overhead pole line and underground conduit carrying primary, secondary, and street lighting circuits. The company serves approximately 6 million customers in Ohio, Pennsylvania, West Virginia, Maryland, New Jersey, and New York. FirstEnergy Corp. was incorporated in 1996 and is headquartered in Akron, Ohio.

About Pinnacle West Capital

Pinnacle West Capital Corporation, through its subsidiary, provides retail and wholesale electric services primarily in the state of Arizona. The company engages in the generation, transmission, and distribution of electricity using coal, nuclear, gas, oil, and solar generating facilities. Its transmission facilities include overhead lines and underground lines; and distribution facilities consist of overhead lines and underground primary cables. The company also owns and maintains transmission and distribution substations; and owns energy storage facilities. Pinnacle West Capital Corporation was incorporated in 1985 and is headquartered in Phoenix, Arizona.