Dominion Energy, Inc. (NYSE:D) shares are down more than -10.95% this year and recently increased 0.85% or $0.61 to settle at $72.18. The Progressive Corporation (NYSE:PGR), on the other hand, is up 22.05% year to date as of 09/13/2018. It currently trades at $68.74 and has returned -0.12% during the past week.
Dominion Energy, Inc. (NYSE:D) and The Progressive Corporation (NYSE:PGR) 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.Growth
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 D to grow earnings at a 6.38% annual rate over the next 5 years. Comparatively, PGR is expected to grow at a 24.16% annual rate. All else equal, PGR’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 10.66% for The Progressive Corporation (PGR). D’s ROI is 6.10% while PGR has a ROI of 13.10%. The interpretation is that PGR’s business generates a higher return on investment than D’s.Cash Flow
Cash is king when it comes to investing. D’s free cash flow (“FCF”) per share for the trailing twelve months was -0.52. Comparatively, PGR’s free cash flow per share was +2.85. On a percent-of-sales basis, D’s free cash flow was -2.7% while PGR converted 6.19% of its revenues into cash flow. This means that, for a given level of sales, PGR is able to generate more free cash flow for investors.Liquidity and Financial Risk
D’s debt-to-equity ratio is 2.09 versus a D/E of 0.37 for PGR. D is therefore the more solvent of the two companies, and has lower financial risk.
D trades at a forward P/E of 17.02, a P/B of 2.61, and a P/S of 3.69, compared to a forward P/E of 15.19, a P/B of 3.81, and a P/S of 1.36 for PGR. D is the cheaper of the two stocks on book value basis but is expensive in terms of P/E and P/S 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
Just because a stock is cheaper doesn’t mean there’s more value to be had. In order to assess value we need to compare the current price to where it’s likely to trade in the future. D is currently priced at a -0.92% to its one-year price target of 72.85. Comparatively, PGR is 1.37% relative to its price target of 67.81. This suggests that D is the better investment over the next year.
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. D has a beta of 0.21 and PGR’s beta is 0.67. D’s shares are therefore the less volatile of the two stocks.Insider Activity and Investor Sentiment
Analysts often look at short interest, or the percentage of a company’s float currently being shorted by investors, to aid in their outlook for a particular stock. D has a short ratio of 5.84 compared to a short interest of 2.83 for PGR. This implies that the market is currently less bearish on the outlook for PGR.Summary
The Progressive Corporation (NYSE:PGR) beats Dominion Energy, Inc. (NYSE:D) on a total of 9 of the 14 factors compared between the two stocks. PGR is more profitable, generates a higher return on investment, has higher cash flow per share, has a higher cash conversion rate and has lower financial risk. In terms of valuation, PGR is the cheaper of the two stocks on an earnings and sales basis, Finally, PGR has better sentiment signals based on short interest.