Financial Analysis: Southern (NYSE:SO) and E.On (OTCMKTS:EONGY)

E.On (OTCMKTS:EONGY) and Southern (NYSE:SO) are both large-cap utilities companies, but which is the better business? We will contrast the two companies based on the strength of their analyst recommendations, institutional ownership, earnings, dividends, risk, valuation and profitability.

Institutional and Insider Ownership

64.1% of Southern shares are held by institutional investors. 0.2% of Southern shares are held by company insiders. Strong institutional ownership is an indication that endowments, hedge funds and large money managers believe a stock will outperform the market over the long term.

Profitability

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

	Net Margins	Return on Equity	Return on Assets
E.On	3.61%	11.86%	2.63%
Southern	15.42%	12.52%	3.14%

Dividends

E.On pays an annual dividend of $0.46 per share and has a dividend yield of 2.2%. Southern pays an annual dividend of $2.96 per share and has a dividend yield of 3.3%. E.On pays out 37.7% of its earnings in the form of a dividend. Southern pays out 73.3% 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. Southern is clearly the better dividend stock, given its higher yield and longer track record of dividend growth.

Earnings and Valuation

This table compares E.On and Southern”s revenue, earnings per share and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
E.On	$86.71 billion	N/A	$4.90 billion	$1.22	17.36
Southern	$26.72 billion	3.68	$4.40 billion	$4.04	22.11

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

Volatility and Risk

E.On has a beta of 0.81, meaning that its share price is 19% less volatile than the S&P 500. Comparatively, Southern has a beta of 0.46, meaning that its share price is 54% less volatile than the S&P 500.

Analyst Recommendations

This is a summary of recent recommendations and price targets for E.On and Southern, as provided by MarketBeat.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
E.On	0	5	2	2	2.67
Southern	3	12	4	0	2.05

Southern has a consensus price target of $94.91, suggesting a potential upside of 6.26%. Given Southern’s higher probable upside, analysts plainly believe Southern is more favorable than E.On.

Summary

Southern beats E.On on 11 of the 17 factors compared between the two stocks.

About E.On

E.ON SE operates as an energy company in Germany, the United Kingdom, Sweden, the Netherlands, rest of Europe, and internationally. It operates through two segments, Energy Networks and Customer Solutions. The Energy Networks segment operates power and gas distribution networks, as well as provides maintenance, repairs, and related services. The Customer Solutions segment supplies power, gas, and heat, as well as with products and services that enhance energy efficiency to residential, small and medium-sized enterprises, large commercial and industrial, sales partners, and public entities. Additionally, it provides SmartSim, a software solution that allows renewable gases to be fed into gas grids; gas quality tracking solutions; GasPro, a mobile gas sample collector; metering solutions; and GasCalc, a software that calculates natural gases, LNG, and biogases properties. The company was founded in 1923 and is headquartered in Essen, Germany.

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.