Critical Analysis: Southern (NYSE:SO) and RWE (OTCMKTS:RWEOY)

Southern (NYSE:SO) and RWE (OTCMKTS:RWEOY) are both large-cap utilities companies, but which is the superior investment? We will contrast the two businesses based on the strength of their institutional ownership, analyst recommendations, earnings, valuation, risk, profitability and dividends.

Dividends

Southern pays an annual dividend of $2.96 per share and has a dividend yield of 3.1%. RWE pays an annual dividend of $0.88 per share and has a dividend yield of 1.4%. Southern pays out 75.3% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. RWE pays out 25.1% of its earnings in the form of a dividend. Southern has raised its dividend for 25 consecutive years. Southern is clearly the better dividend stock, given its higher yield and longer track record of dividend growth.

Valuation and Earnings

This table compares Southern and RWE”s top-line revenue, earnings per share (EPS) and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
Southern	$29.55 billion	3.57	$4.34 billion	$3.93	24.39
RWE	$26.22 billion	1.73	$5.56 billion	$3.50	17.83

RWE has lower revenue, but higher earnings than Southern. RWE is trading at a lower price-to-earnings ratio than Southern, indicating that it is currently the more affordable of the two stocks.

Volatility and Risk

Southern has a beta of 0.45, meaning that its share price is 55% less volatile than the S&P 500. Comparatively, RWE has a beta of 0.67, meaning that its share price is 33% less volatile than the S&P 500.

Profitability

This table compares Southern and RWE’s net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
Southern	14.69%	12.52%	3.13%
RWE	10.82%	5.42%	2.01%

Analyst Ratings

This is a breakdown of recent ratings and target prices for Southern and RWE, as provided by MarketBeat.com.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
Southern	2	12	5	0	2.16
RWE	0	3	2	0	2.40

Southern presently has a consensus price target of $97.64, indicating a potential upside of 1.86%. RWE has a consensus price target of $53.30, indicating a potential downside of 14.58%. Given Southern’s higher probable upside, equities analysts plainly believe Southern is more favorable than RWE.

Insider and Institutional Ownership

64.1% of Southern shares are held by institutional investors. 0.2% of Southern shares are held by company insiders. Strong institutional ownership is an indication that endowments, large money managers and hedge funds believe a company is poised for long-term growth.

Summary

Southern beats RWE on 13 of the 17 factors compared between the two stocks.

About Southern

The Southern Company, through its subsidiaries, engages in the generation, transmission, and distribution of electricity. The company also develops, constructs, acquires, owns, and manages power generation assets, including renewable energy projects and sells electricity in the wholesale market; and distributes natural gas in Illinois, Georgia, Virginia, and Tennessee, as well as provides gas marketing services, gas distribution operations, and gas pipeline investments operations. In addition, it owns and operates nuclear, coal, hydro, cogeneration, solar, wind, battery storage, and fuel cell facilities. Further, the constructs, operates, and maintains approximately 77,900 miles of natural gas pipelines and 14 storage facilities with total capacity of 157 Bcf to provide natural gas to residential, commercial, and industrial customers. The company serves approximately 8.9 million electric and gas utility customers. Further, it develops distributed energy and resilience solutions; deploys microgrids for commercial, industrial, governmental, and utility customers; and offers digital wireless communications and fiber optics services. The Southern Company was incorporated in 1945 and is headquartered in Atlanta, Georgia.

About RWE

RWE Aktiengesellschaft generates and supplies electricity from renewable and conventional sources in Germany, the United Kingdom, rest of Europe, North America, and internationally. It operates through five segments: Offshore Wind; Onshore Wind/Solar; Hydro/Biomass/Gas; Supply & Trading; and Coal/Nuclear. The company generates wind, hydro, solar, nuclear, gas, and biomass electricity. It also trades in electricity, gas, and energy commodities; operates gas storage facilities; and engages in battery storage activities. The company serves commercial, industrial, and corporate customers. RWE Aktiengesellschaft was founded in 1898 and is headquartered in Essen, Germany.