Critical Comparison: PNM Resources (PNM) & ALLETE (ALE)

PNM Resources (NYSE: PNM) and ALLETE (NYSE:ALE) are both mid-cap utilities companies, but which is the better investment? We will contrast the two companies based on the strength of their earnings, institutional ownership, profitability, analyst recommendations, risk, dividends and valuation.

Dividends

PNM Resources pays an annual dividend of $0.97 per share and has a dividend yield of 2.4%. ALLETE pays an annual dividend of $2.14 per share and has a dividend yield of 2.9%. PNM Resources pays out 49.0% of its earnings in the form of a dividend. ALLETE pays out 61.8% 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. PNM Resources has raised its dividend for 6 consecutive years and ALLETE has raised its dividend for 5 consecutive years.

Analyst Recommendations

This is a summary of current ratings for PNM Resources and ALLETE, as provided by MarketBeat.com.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
PNM Resources 4 7 1 0 1.75
ALLETE 1 2 0 0 1.67

PNM Resources presently has a consensus target price of $39.08, suggesting a potential downside of 3.74%. ALLETE has a consensus target price of $77.67, suggesting a potential upside of 4.52%. Given ALLETE’s higher probable upside, analysts plainly believe ALLETE is more favorable than PNM Resources.

Insider and Institutional Ownership

92.2% of PNM Resources shares are owned by institutional investors. Comparatively, 73.2% of ALLETE shares are owned by institutional investors. 1.3% of PNM Resources shares are owned by company insiders. Comparatively, 0.4% of ALLETE shares are owned by company insiders. Strong institutional ownership is an indication that endowments, hedge funds and large money managers believe a stock is poised for long-term growth.

Risk and Volatility

PNM Resources has a beta of 0.36, meaning that its share price is 64% less volatile than the S&P 500. Comparatively, ALLETE has a beta of 0.47, meaning that its share price is 53% less volatile than the S&P 500.

Profitability

This table compares PNM Resources and ALLETE’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
PNM Resources 11.27% 9.18% 2.49%
ALLETE 12.31% 9.21% 3.71%

Earnings & Valuation

This table compares PNM Resources and ALLETE’s top-line revenue, earnings per share and valuation.

Gross Revenue Price/Sales Ratio Net Income Earnings Per Share Price/Earnings Ratio
PNM Resources $1.36 billion 2.37 $117.37 million $1.98 20.51
ALLETE $1.34 billion 2.83 $155.30 million $3.46 21.48

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

Summary

ALLETE beats PNM Resources on 10 of the 17 factors compared between the two stocks.

About PNM Resources

PNM Resources, Inc. (PNMR) is an investor-owned holding company with approximately two regulated utilities providing electricity and electric services in New Mexico and Texas. PNMR’s electric utilities are Public Service Company of New Mexico (PNM) and Texas-New Mexico Power Company (TNMP). It operates in three segments: PNM, TNMP, and Corporate and Other. The Company, through its Website provides information, including news releases, notices of Webcasts, and filings. PNM is an electric utility that provides electric generation, transmission and distribution service to its rate-regulated customers. TNMP is a regulated utility operating in Texas. TNMP provides transmission and distribution services in Texas under the provisions of Texas Electric Choice Act (TECA) and the Texas Public Utility Regulatory Act. The Corporate and Other segment includes PNMR holding company activities, related to corporate level debt and PNMR Services Company.

About ALLETE

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.

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