Critical Review: Allete (ALE) versus MGE Energy (MGEE)
Allete (NYSE: ALE) and MGE Energy (NASDAQ:MGEE) are both mid-cap utilities companies, but which is the superior business? We will contrast the two companies based on the strength of their analyst recommendations, risk, profitability, earnings, institutional ownership, valuation and dividends.
Risk and Volatility
Allete has a beta of 0.48, meaning that its share price is 52% less volatile than the S&P 500. Comparatively, MGE Energy has a beta of 0.36, meaning that its share price is 64% less volatile than the S&P 500.
This table compares Allete and MGE Energy’s net margins, return on equity and return on assets.
|Net Margins||Return on Equity||Return on Assets|
Insider & Institutional Ownership
72.4% of Allete shares are owned by institutional investors. Comparatively, 37.5% of MGE Energy shares are owned by institutional investors. 0.4% of Allete shares are owned by company insiders. Comparatively, 0.2% of MGE Energy shares are owned by company 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.
This is a breakdown of recent ratings and target prices for Allete and MGE Energy, as provided by MarketBeat.com.
|Sell Ratings||Hold Ratings||Buy Ratings||Strong Buy Ratings||Rating Score|
Allete currently has a consensus price target of $77.50, suggesting a potential downside of 1.16%. Given Allete’s higher probable upside, research analysts plainly believe Allete is more favorable than MGE Energy.
Earnings and Valuation
This table compares Allete and MGE Energy’s top-line revenue, earnings per share and valuation.
|Gross Revenue||Price/Sales Ratio||EBITDA||Earnings Per Share||Price/Earnings Ratio|
|Allete||$1.41 billion||2.83||$412.30 million||$3.39||23.13|
|MGE Energy||$558.93 million||4.11||$178.68 million||$2.23||29.69|
Allete has higher revenue and earnings than MGE Energy. Allete is trading at a lower price-to-earnings ratio than MGE Energy, indicating that it is currently the more affordable of the two stocks.
Allete pays an annual dividend of $2.14 per share and has a dividend yield of 2.7%. MGE Energy pays an annual dividend of $1.29 per share and has a dividend yield of 1.9%. Allete pays out 63.1% of its earnings in the form of a dividend. MGE Energy pays out 57.8% of its earnings in the form of a dividend. Both companies have healthy payout ratios and should be able to cover their dividend payments with earnings for the next several years. Allete has raised its dividend for 41 consecutive years and MGE Energy has raised its dividend for 6 consecutive years. Allete is clearly the better dividend stock, given its higher yield and longer track record of dividend growth.
Allete beats MGE Energy on 10 of the 16 factors compared between the two stocks.
ALLETE, Inc. is an energy company. The Company’s segments include Regulated Operations, ALLETE Clean Energy, Inc. (ALLETE Clean Energy), U.S. Water Services Holding Company (U.S. Water Services), and Corporate and Other. The Regulated Operations segment includes its regulated utilities, Minnesota Power, and Superior Water, Light and Power Company, and its investment in American Transmission Company LLC. The ALLETE Clean Energy segment focuses on developing, acquiring and operating clean and renewable energy projects. The U.S. Water Services provides integrated water management for industry by combining chemical, equipment, engineering and service for customized solution. As of December 31, 2016, its Corporate and Other consisted of BNI Energy, Inc. (BNI Energy), its coal mining operations in North Dakota, ALLETE Properties, LLC (ALLETE Properties), its Florida real estate investment and approximately 5,000 acres of land in Minnesota.
About MGE Energy
MGE Energy, Inc. (MGE) is a public utility holding company. The Company operates through five segments: Regulated electric utility operations; Regulated gas utility operations; Nonregulated energy operations; Transmission investments, and All other. The Regulated electric utility operations segment is engaged in generating, purchasing and distributing electricity through Madison Gas and Electric Company (MGE). The Regulated gas utility operations segment is engaged in purchasing and distributing natural gas through MGE. The Nonregulated energy operations segment is engaged in owning and leasing electric generating capacity that assists MGE through MGE Energy’s subsidiaries MGE Power Elm Road, LLC and MGE Power West Campus, LLC. The Transmission investments segment represents its investment in American Transmission Company LLC and ATC Holdco, LLC. The All other segment is engaged in investing and financing in companies and property that relate to the regulated operations.
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