Eversource Energy (NYSE:ES), on the other hand, is down -2.63% year to date as of 01/11/2018. It currently trades at $61.52 and has returned -0.31% during the past week.
NiSource Inc. (NYSE:NI) and Eversource Energy (NYSE:ES) are the two most active stocks in the Diversified Utilities industry based on today’s trading volumes. To determine if one is a better investment than the other, we will compare the two companies’ growth, profitability, risk, return, and valuation characteristics, as well as their analyst ratings and sentiment signals.
Companies that can consistently grow earnings at a high compound rate usually have the greatest potential to create value for shareholders in the long-run. Analysts expect NI to grow earnings at a 7.70% annual rate over the next 5 years. Comparatively, ES is expected to grow at a 5.92% annual rate. All else equal, NI’s higher growth rate would imply a greater potential for capital appreciation.
Profitability and Returns
Just, if not more, important than the growth rate is the quality of that growth. Growth can actual be harmful to investors if it comes at the cost of weak profitability and low returns. To adjust for differences in capital structure we’ll use EBITDA margin and Return on Investment (ROI) as measures of profitability and return., compared to an EBITDA margin of 37.16% for Eversource Energy (ES). NI’s ROI is 5.60% while ES has a ROI of 6.10%. The interpretation is that ES’s business generates a higher return on investment than NI’s.
Cash is king when it comes to investing. NI’s free cash flow (“FCF”) per share for the trailing twelve months was -2.00. Comparatively, ES’s free cash flow per share was -0.20. On a percent-of-sales basis, NI’s free cash flow was -14.99% while ES converted -0.83% of its revenues into cash flow. This means that, for a given level of sales, ES is able to generate more free cash flow for investors.
Liquidity and Financial Risk
Liquidity and leverage ratios are important because they reveal the financial health of a company. NI has a current ratio of 0.50 compared to 0.90 for ES. This means that ES can more easily cover its most immediate liabilities over the next twelve months. NI’s debt-to-equity ratio is 1.98 versus a D/E of 1.04 for ES. NI is therefore the more solvent of the two companies, and has lower financial risk.
NI trades at a forward P/E of 18.78, a P/B of 1.83, and a P/S of 1.71, compared to a forward P/E of 18.52, a P/B of 1.78, and a P/S of 2.56 for ES. NI is the cheaper of the two stocks on sales basis but is expensive in terms of P/E and P/B ratio. Given that earnings are what matter most to investors, analysts tend to place a greater weight on the P/E.
Analyst Price Targets and Opinions
When investing it’s crucial to distinguish between price and value. As Warren Buffet said, “price is what you pay, value is what you get”. NI is currently priced at a -15.45% to its one-year price target of 28.54. Comparatively, ES is -5.35% relative to its price target of 65.00. This suggests that NI is the better investment over the next year.
The average investment recommendation on a scale of 1 to 5 (1 being a strong buy, 3 a hold, and 5 a sell) is 2.30 for NI and 2.30 for ES, which implies that analysts are equally bullish on their outlook for the two stocks.
Risk and Volatility
Beta is an important measure that gives investors a sense of the market risk associated with a particular stock. A beta above 1 signals above average market risk, while a beta below 1 implies below average volatility. NI has a beta of 0.26 and ES’s beta is 0.29. NI’s shares are therefore the less volatile of the two stocks.
Insider Activity and Investor Sentiment
Comparing the number of shares sold short to the float is a method analysts often use to get a reading on investor sentiment. NI has a short ratio of 3.08 compared to a short interest of 3.34 for ES. This implies that the market is currently less bearish on the outlook for NI.
Eversource Energy (NYSE:ES) beats NiSource Inc. (NYSE:NI) on a total of 8 of the 14 factors compared between the two stocks. ES is growing fastly, generates a higher return on investment, has higher cash flow per share, has a higher cash conversion rate, higher liquidity and has lower financial risk. In terms of valuation, ES is the cheaper of the two stocks on an earnings and book value, Finally, PEG has better sentiment signals based on short interest.