Critical Contrast: TransAlta (NYSE:TAC) versus Xcel Energy (NASDAQ:XEL)

TransAlta (NYSE:TAC) and Xcel Energy (NASDAQ:XEL) are both 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.

Analyst Ratings

This is a breakdown of recent ratings and target prices for TransAlta and Xcel Energy, as provided by MarketBeat.com.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
TransAlta	1	2	6	1	2.70
Xcel Energy	1	1	13	3	3.00

TransAlta presently has a consensus price target of $19.88, indicating a potential upside of 52.94%. Xcel Energy has a consensus price target of $87.29, indicating a potential upside of 16.88%. Given TransAlta’s higher probable upside, equities analysts plainly believe TransAlta is more favorable than Xcel Energy.

Dividends

TransAlta pays an annual dividend of $0.18 per share and has a dividend yield of 1.4%. Xcel Energy pays an annual dividend of $2.28 per share and has a dividend yield of 3.1%. TransAlta pays out -37.5% of its earnings in the form of a dividend. Xcel Energy pays out 69.5% 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. TransAlta has raised its dividend for 2 consecutive years and Xcel Energy has raised its dividend for 22 consecutive years. Xcel Energy is clearly the better dividend stock, given its higher yield and longer track record of dividend growth.

Volatility and Risk

TransAlta has a beta of 0.75, meaning that its share price is 25% less volatile than the S&P 500. Comparatively, Xcel Energy has a beta of 0.46, meaning that its share price is 54% less volatile than the S&P 500.

Insider and Institutional Ownership

59.0% of TransAlta shares are held by institutional investors. Comparatively, 78.4% of Xcel Energy shares are held by institutional investors. 13.1% of TransAlta shares are held by company insiders. Comparatively, 0.1% of Xcel Energy 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.

Profitability

This table compares TransAlta and Xcel Energy’s net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
TransAlta	-7.39%	3.00%	0.26%
Xcel Energy	13.46%	10.45%	2.86%

Earnings & Valuation

This table compares TransAlta and Xcel Energy”s top-line revenue, earnings per share and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
TransAlta	$2.48 billion	1.55	$167.12 million	($0.48)	-27.07
Xcel Energy	$13.44 billion	3.29	$1.94 billion	$3.28	22.77

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

Summary

Xcel Energy beats TransAlta on 14 of the 18 factors compared between the two stocks.

About TransAlta

TransAlta Corporation engages in the development, production, and sale of electric energy. It operates through Hydro, Wind and Solar, Gas, Energy Transition, and Energy Marketing segments. The Hydro segment holds interest of approximately 922 megawatts (MW) of owned hydroelectric generating capacity located in Alberta, British Columbia, and Ontario. The Wind and Solar segment has a net ownership interest of approximately 2,057 MW of owned wind and solar electrical-generating capacity, as well as battery storage facilities located in Alberta, Ontario, New Brunswick, and Québec in Canada; the states of Massachusetts, Minnesota, New Hampshire, North Carolina, Pennsylvania, Washington, and Wyoming in the United States; and the state of Western Australia. The Gas segment has a net ownership interest of approximately 2,775 MW of owned gas electrical-generating capacity, and facilities located in Alberta, Ontario, Michigan, and the state of Western Australia. The Energy Transition segment has a net ownership interest of approximately 671 MW of owned coal electrical-generating capacity, as well as operates the Skookumchuck hydro facility in Centralia; and engages in the highvale mine and the mine reclamation activities. The Energy Marketing segment is involved in the trading of power, natural gas, and environmental products. It serves customers in various industry segments, including commercial real estate, municipal, manufacturing, industrial, hospitality, finance, and oil and gas. TransAlta Corporation was founded in 1909 and is headquartered in Calgary, Canada.

About Xcel Energy

Xcel Energy Inc., through its subsidiaries, engages in the generation, purchasing, transmission, distribution, and sale of electricity. It operates through Regulated Electric Utility, Regulated Natural Gas Utility, and All Other segments. The company generates electricity through wind, nuclear, hydroelectric, biomass, and solar energy sources, as well as coal, natural gas, oil, wood, and refuse-derived fuels. It also purchases, transports, distributes, and sells natural gas to retail customers, as well as transports customer-owned natural gas. In addition, the company develops and leases natural gas pipelines, and storage and compression facilities; and invests in rental housing projects and nonregulated assets, as well as procures equipment for the construction of renewable generation facilities. It serves residential, commercial, and industrial customers in the portions of Colorado, Michigan, Minnesota, New Mexico, North Dakota, South Dakota, Texas, and Wisconsin. The company was incorporated in 1909 and is headquartered in Minneapolis, Minnesota.