Pinnacle West Capital (PNW) versus Otter Tail (OTTR) Critical Comparison

Pinnacle West Capital (NYSE: PNW) and Otter Tail (NASDAQ:OTTR) are both utilities companies, but which is the superior investment? We will contrast the two companies based on the strength of their valuation, profitability, risk, institutional ownership, earnings, dividends and analyst recommendations.

Earnings & Valuation

This table compares Pinnacle West Capital and Otter Tail’s gross revenue, earnings per share and valuation.

Gross Revenue Price/Sales Ratio Net Income Earnings Per Share Price/Earnings Ratio
Pinnacle West Capital $3.50 billion 2.53 $442.03 million $4.63 17.11
Otter Tail $803.54 million 2.04 $62.32 million $1.80 22.97

Pinnacle West Capital has higher revenue and earnings than Otter Tail. Pinnacle West Capital is trading at a lower price-to-earnings ratio than Otter Tail, indicating that it is currently the more affordable of the two stocks.

Profitability

This table compares Pinnacle West Capital and Otter Tail’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Pinnacle West Capital 14.67% 10.31% 3.16%
Otter Tail 8.53% 10.47% 3.68%

Dividends

Pinnacle West Capital pays an annual dividend of $2.78 per share and has a dividend yield of 3.5%. Otter Tail pays an annual dividend of $1.28 per share and has a dividend yield of 3.1%. Pinnacle West Capital pays out 60.0% of its earnings in the form of a dividend. Otter Tail pays out 71.1% 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. Pinnacle West Capital has raised its dividend for 6 consecutive years. Pinnacle West Capital is clearly the better dividend stock, given its higher yield and longer track record of dividend growth.

Analyst Recommendations

This is a summary of current ratings and target prices for Pinnacle West Capital and Otter Tail, as reported by MarketBeat.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Pinnacle West Capital 2 8 0 0 1.80
Otter Tail 0 3 0 0 2.00

Pinnacle West Capital presently has a consensus target price of $85.00, suggesting a potential upside of 7.30%. Otter Tail has a consensus target price of $41.00, suggesting a potential downside of 0.85%. Given Pinnacle West Capital’s higher probable upside, equities analysts clearly believe Pinnacle West Capital is more favorable than Otter Tail.

Volatility and Risk

Pinnacle West Capital has a beta of 0.38, suggesting that its share price is 62% less volatile than the S&P 500. Comparatively, Otter Tail has a beta of 0.82, suggesting that its share price is 18% less volatile than the S&P 500.

Institutional & Insider Ownership

82.7% of Pinnacle West Capital shares are owned by institutional investors. Comparatively, 41.0% of Otter Tail shares are owned by institutional investors. 0.7% of Pinnacle West Capital shares are owned by company insiders. Comparatively, 1.4% of Otter Tail shares are owned by company insiders. Strong institutional ownership is an indication that hedge funds, endowments and large money managers believe a stock is poised for long-term growth.

Summary

Pinnacle West Capital beats Otter Tail on 10 of the 16 factors compared between the two stocks.

Pinnacle West Capital Company Profile

Pinnacle West Capital Corporation is a holding company that operates through its subsidiaries. The Company operates through regulated electricity segment, which consists of traditional regulated retail and wholesale electricity businesses and related activities, and includes electricity generation, transmission and distribution. It owned and leased 6,236 megawatt (MW) of regulated generation capacity and the Company held a mix of both long-term and short-term purchased power agreements for additional capacity, including agreements for the purchase of renewable energy, as of December 31, 2016. Its subsidiaries include Arizona Public Service Company, which is a vertically-integrated electric utility that provides retail or wholesale electric service to the State of Arizona, with the exceptions of about one-half of the Phoenix metropolitan area, the Tucson metropolitan area and Mohave County in northwestern Arizona.

Otter Tail Company Profile

Otter Tail Corporation is a holding company. The Company operates through three segments: Electric, Manufacturing and Plastics. The Electric segment includes the production, transmission, distribution and sale of electric energy in Minnesota, North Dakota and South Dakota by Otter Tail Power Company (OTP). The Manufacturing segment consists of businesses in manufacturing activities, such as contract machining, metal parts stamping, fabrication and painting, and production of material and handling trays and horticultural containers. These businesses have manufacturing facilities in Georgia, Illinois and Minnesota and sell products primarily in the United States. The Plastics segment consists of businesses producing polyvinyl chloride (PVC) pipe at plants in North Dakota and Arizona. The PVC pipe is sold primarily in the upper Midwest and Southwest regions of the United States. The Company’s manufacturing and plastic pipe businesses are owned by its subsidiary, Varistar Corporation.

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