Duke Energy Corporation (NYSE:DUK) shares are down more than -2.33% this year and recently increased 1.56% or $1.26 to settle at $82.15. UnitedHealth Group Incorporated (NYSE:UNH), on the other hand, is up 20.43% year to date as of 09/13/2018. It currently trades at $265.49 and has returned -1.54% during the past week.
Duke Energy Corporation (NYSE:DUK) and UnitedHealth Group Incorporated (NYSE:UNH) 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
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 DUK to grow earnings at a 4.13% annual rate over the next 5 years. Comparatively, UNH is expected to grow at a 15.37% annual rate. All else equal, UNH’s higher growth rate would imply a greater potential for capital appreciation.Profitability and Returns
Growth in and of itself is not necessarily valuable, and it can even be harmful to shareholders if companies overinvest in unprofitable projects in pursuit of that growth. We will use EBITDA margin and Return on Investment (ROI), which adjust for differences in capital structure, as measure of profitability and return. , compared to an EBITDA margin of 8.73% for UnitedHealth Group Incorporated (UNH). DUK’s ROI is 4.70% while UNH has a ROI of 13.60%. The interpretation is that UNH’s business generates a higher return on investment than DUK’s.Cash Flow
Earnings don’t always accurately reflect the amount of cash that a company brings in. DUK’s free cash flow (“FCF”) per share for the trailing twelve months was -1.39. Comparatively, UNH’s free cash flow per share was +2.71. On a percent-of-sales basis, DUK’s free cash flow was -4.2% while UNH converted 1.3% of its revenues into cash flow. This means that, for a given level of sales, UNH is able to generate more free cash flow for investors.Liquidity and Financial Risk
DUK’s debt-to-equity ratio is 1.32 versus a D/E of 0.73 for UNH. DUK is therefore the more solvent of the two companies, and has lower financial risk.
DUK trades at a forward P/E of 16.54, a P/B of 1.36, and a P/S of 2.46, compared to a forward P/E of 18.45, a P/B of 5.28, and a P/S of 1.20 for UNH. 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”. DUK is currently priced at a -2.85% to its one-year price target of 84.56. Comparatively, UNH is -7.67% relative to its price target of 287.55. This suggests that UNH 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. DUK has a beta of 0.01 and UNH’s beta is 0.73. DUK’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. DUK has a short ratio of 3.24 compared to a short interest of 2.59 for UNH. This implies that the market is currently less bearish on the outlook for UNH.Summary
UnitedHealth Group Incorporated (NYSE:UNH) beats Duke Energy Corporation (NYSE:DUK) on a total of 9 of the 14 factors compared between the two stocks. UNH 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. UNH is more undervalued relative to its price target. Finally, UNH has better sentiment signals based on short interest.