AES (NYSE:AES) versus Allete (NYSE:ALE) Critical Survey

AES (NYSE:AES) and Allete (NYSE:ALE) are both utilities companies, but which is the superior business? We will compare the two businesses based on the strength of their risk, institutional ownership, earnings, dividends, valuation, profitability and analyst recommendations.

Valuation & Earnings

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

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
AES	$12.28 billion	0.83	$1.68 billion	$1.60	8.95
Allete	$1.53 billion	2.58	$179.30 million	$2.85	23.83

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

Risk & Volatility

AES has a beta of 0.98, indicating that its stock price is 2% less volatile than the S&P 500. Comparatively, Allete has a beta of 0.83, indicating that its stock price is 17% less volatile than the S&P 500.

Profitability

This table compares AES and Allete’s net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
AES	9.47%	18.83%	3.04%
Allete	11.04%	5.08%	2.47%

Dividends

AES pays an annual dividend of $0.70 per share and has a dividend yield of 4.9%. Allete pays an annual dividend of $2.92 per share and has a dividend yield of 4.3%. AES pays out 43.8% of its earnings in the form of a dividend. Allete pays out 102.5% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. AES has raised its dividend for 12 consecutive years and Allete has raised its dividend for 15 consecutive years. AES is clearly the better dividend stock, given its higher yield and lower payout ratio.

Insider & Institutional Ownership

93.1% of AES shares are held by institutional investors. Comparatively, 76.6% of Allete shares are held by institutional investors. 0.6% of AES shares are held by insiders. Comparatively, 0.3% of Allete shares are held by insiders. Strong institutional ownership is an indication that hedge funds, endowments and large money managers believe a company will outperform the market over the long term.

Analyst Ratings

This is a breakdown of recent recommendations for AES and Allete, as provided by MarketBeat.com.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
AES	1	4	7	0	2.50
Allete	0	0	1	0	3.00

AES currently has a consensus target price of $23.83, suggesting a potential upside of 66.38%. Given AES’s higher possible upside, equities analysts plainly believe AES is more favorable than Allete.

Summary

AES beats Allete on 11 of the 17 factors compared between the two stocks.

About AES

The AES Corporation, together with its subsidiaries, operates as a diversified power generation and utility company in the United States and internationally. The company owns and/or operates power plants to generate and sell power to customers, such as utilities, industrial users, and other intermediaries; owns and/or operates utilities to generate or purchase, distribute, transmit, and sell electricity to end-user customers in the residential, commercial, industrial, and governmental sectors; and generates and sells electricity on the wholesale market. It uses various fuels and technologies to generate electricity, such as coal, gas, hydro, wind, solar, and biomass, as well as renewables comprising energy storage and landfill gas. The company owns and/or operates a generation portfolio of approximately 34,596 megawatts and distributes power to 2.6 million customers. The company was formerly known as Applied Energy Services, Inc. and changed its name to The AES Corporation in April 2000. The AES Corporation was incorporated in 1981 and is headquartered in Arlington, Virginia.

About Allete

ALLETE, Inc. operates as an energy company. The company operates through Regulated Operations, ALLETE Clean Energy, and Corporate and Other segments. It generates electricity from coal-fired, biomass co-fired / natural gas, hydroelectric, wind, and solar. In addition, the company provides regulated utility electric services in northwestern Wisconsin to approximately 15,000 electric customers, 13,000 natural gas customers, and 10,000 water customers, as well as regulated utility electric services in northeastern Minnesota to approximately 150,000 retail customers and 14 non-affiliated municipal customers. Further, it owns and maintains electric transmission assets in Wisconsin, Michigan, Minnesota, and Illinois. Additionally, the company focuses on developing, acquiring, and operating clean and renewable energy projects; and owns and operates approximately 1,200 megawatts of wind energy generation facility, as well as involved in the coal mining operations in North Dakota; and real estate investment activities in Florida. It owns and operates 162 substations with a total capacity of 9,980 megavolt amperes. The company serves taconite mining, paper, pulp and secondary wood products, pipeline, and other industries. The company was formerly known as Minnesota Power, Inc. and changed its name to ALLETE, Inc. in May 2001. ALLETE, Inc. was incorporated in 1906 and is headquartered in Duluth, Minnesota.