Ameren (NYSE:AEE) and Southern (NYSE:SO) Critical Analysis

Southern (NYSE:SO) and Ameren (NYSE:AEE) are both large-cap utilities companies, but which is the better investment? We will compare the two businesses based on the strength of their profitability, earnings, institutional ownership, dividends, analyst recommendations, valuation and risk.

Profitability

This table compares Southern and Ameren’s net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
Southern	15.43%	12.93%	3.28%
Ameren	17.86%	10.95%	3.00%

Analyst Ratings

This is a summary of current recommendations and price targets for Southern and Ameren, as reported by MarketBeat.com.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
Southern	2	11	7	0	2.25
Ameren	0	3	10	0	2.77

Southern currently has a consensus target price of $100.09, indicating a potential upside of 12.53%. Ameren has a consensus target price of $121.42, indicating a potential upside of 13.59%. Given Ameren’s stronger consensus rating and higher possible upside, analysts clearly believe Ameren is more favorable than Southern.

Insider and Institutional Ownership

64.1% of Southern shares are held by institutional investors. Comparatively, 79.1% of Ameren shares are held by institutional investors. 0.2% of Southern shares are held by company insiders. Comparatively, 0.3% of Ameren shares are held by company insiders. Strong institutional ownership is an indication that hedge funds, large money managers and endowments believe a company is poised for long-term growth.

Risk & Volatility

Southern has a beta of 0.33, indicating that its share price is 67% less volatile than the S&P 500. Comparatively, Ameren has a beta of 0.46, indicating that its share price is 54% less volatile than the S&P 500.

Earnings and Valuation

This table compares Southern and Ameren”s gross revenue, earnings per share (EPS) and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
Southern	$29.55 billion	3.46	$4.34 billion	$4.17	21.33
Ameren	$8.80 billion	3.36	$1.46 billion	$5.68	18.82

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

Dividends

Southern pays an annual dividend of $3.04 per share and has a dividend yield of 3.4%. Ameren pays an annual dividend of $3.00 per share and has a dividend yield of 2.8%. Southern pays out 72.9% of its earnings in the form of a dividend. Ameren pays out 52.8% 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. Southern has raised its dividend for 25 consecutive years and Ameren has raised its dividend for 12 consecutive years. Southern is clearly the better dividend stock, given its higher yield and longer track record of dividend growth.

Summary

Ameren beats Southern on 9 of the 17 factors compared between the two stocks.

About Southern

The Southern Company, through its subsidiaries, engages in the generation, transmission, and distribution of electricity. The company also develops, constructs, acquires, owns, and manages power generation assets, including renewable energy projects and sells electricity in the wholesale market; and distributes natural gas in Illinois, Georgia, Virginia, and Tennessee, as well as provides gas marketing services, gas distribution operations, and gas pipeline investments operations. In addition, it owns and operates nuclear, coal, hydro, cogeneration, solar, wind, battery storage, and fuel cell facilities. Further, the constructs, operates, and maintains approximately 77,900 miles of natural gas pipelines and 14 storage facilities with total capacity of 157 Bcf to provide natural gas to residential, commercial, and industrial customers. The company serves approximately 8.9 million electric and gas utility customers. Further, it develops distributed energy and resilience solutions; deploys microgrids for commercial, industrial, governmental, and utility customers; and offers digital wireless communications and fiber optics services. The Southern Company was incorporated in 1945 and is headquartered in Atlanta, Georgia.

About Ameren

Ameren Corporation, together with its subsidiaries, operates as a public utility holding company in the United States. The company operates through four segments: Ameren Missouri, Ameren Illinois Electric Distribution, Ameren Illinois Natural Gas, and Ameren Transmission. It engages in the rate-regulated electric generation, transmission, and distribution activities; and rate-regulated natural gas distribution business. In addition, the company generates electricity through coal, nuclear, and natural gas, as well as renewable sources, such as hydroelectric, wind, methane gas, and solar. It serves residential, commercial, and industrial customers. The company was founded in 1881 and is headquartered in Saint Louis, Missouri.