SCANA Corporation (NYSE:SCG) shares are up more than 11.89% this year and recently increased 0.56% or $0.25 to settle at $44.51. Alliant Energy Corporation (NYSE:LNT), on the other hand, is down -6.50% year to date as of 01/10/2018. It currently trades at $39.84 and has returned -3.42% during the past week.
SCANA Corporation (NYSE:SCG) and Alliant Energy Corporation (NYSE:LNT) are the two most active stocks in the Electric 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.
The ability to consistently grow earnings at a high compound rate is a defining characteristic of the best companies for long-term investment. Analysts expect SCG to grow earnings at a 5.50% annual rate over the next 5 years. Comparatively, LNT is expected to grow at a 7.05% annual rate. All else equal, LNT’s higher growth rate would imply a greater potential for capital appreciation.
Profitability and Returns
A high growth rate isn’t necessarily valuable to investors. In fact, companies that overinvest in low return projects just to achieve a high growth rate can actually destroy shareholder value. Profitability and returns are a measure of the quality of a company’s business and its growth opportunities. We’ll use EBITDA margin and Return on Investment (ROI) to measure this., compared to an EBITDA margin of 21.75% for Alliant Energy Corporation (LNT). SCG’s ROI is 6.70% while LNT has a ROI of 5.70%. The interpretation is that SCG’s business generates a higher return on investment than LNT’s.
Earnings don’t always accurately reflect the amount of cash that a company brings in. SCG’s free cash flow (“FCF”) per share for the trailing twelve months was +0.08. Comparatively, LNT’s free cash flow per share was -0.58. On a percent-of-sales basis, SCG’s free cash flow was 0.27% while LNT converted -4.04% of its revenues into cash flow. This means that, for a given level of sales, SCG is able to generate more free cash flow for investors.
Liquidity and Financial Risk
Liquidity and leverage ratios measure a company’s ability to meet short-term obligations and longer-term debts. SCG has a current ratio of 0.90 compared to 0.50 for LNT. This means that SCG can more easily cover its most immediate liabilities over the next twelve months. SCG’s debt-to-equity ratio is 1.32 versus a D/E of 1.17 for LNT. SCG is therefore the more solvent of the two companies, and has lower financial risk.
SCG trades at a forward P/E of 14.72, a P/B of 1.10, and a P/S of 1.52, compared to a forward P/E of 18.82, a P/B of 2.22, and a P/S of 2.78 for LNT. SCG is the cheaper of the two stocks on an earnings, book value and sales basis. 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
A cheap stock is not necessarily a value stock. Most of the time, a stock is cheap for good reason. A stock only has value if the current price is substantially below the price at which it should trade in the future. SCG is currently priced at a -2.45% to its one-year price target of 45.63. Comparatively, LNT is -9.86% relative to its price target of 44.20. This suggests that LNT 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 3.00 for SCG and 2.70 for LNT, which implies that analysts are more bullish on the outlook for SCG.
Risk and Volatility
No discussion on value is complete without taking into account risk. Analysts use a stock’s beta, which measures the volatility of a stock compared to the overall market, to measure systematic risk. A stock with a beta above 1 is more volatile than the market. Conversely, a beta below 1 implies a below average level of risk. SCG has a beta of 0.25 and LNT’s beta is 0.44. SCG’s shares are therefore the less volatile of the two stocks.
Insider Activity and Investor Sentiment
The analysis of insider buying and selling trends can be extended to the aggregate level. Short interest, which represents the percentage of a stock’s tradable shares currently being shorted, captures what the market as a whole feels about a stock. SCG has a short ratio of 1.78 compared to a short interest of 5.27 for LNT. This implies that the market is currently less bearish on the outlook for SCG.
SCANA Corporation (NYSE:SCG) beats Alliant Energy Corporation (NYSE:LNT) on a total of 9 of the 14 factors compared between the two stocks. SCG generates a higher return on investment, has higher cash flow per share, has a higher cash conversion rate and higher liquidity. In terms of valuation, SCG is the cheaper of the two stocks on an earnings, book value and sales basis, Finally, SCG has better sentiment signals based on short interest.