Contrasting AES (AES) and Covanta (CVA)

AES (NYSE: AES) and Covanta (NYSE:CVA) are both utilities companies, but which is the better stock? We will compare the two companies based on the strength of their institutional ownership, risk, valuation, dividends, analyst recommendations, earnings and profitability.

Analyst Recommendations

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This is a breakdown of recent ratings for AES and Covanta, as reported by MarketBeat.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
AES 0 2 3 0 2.60
Covanta 0 1 5 0 2.83

AES currently has a consensus target price of $12.70, indicating a potential upside of 11.21%. Covanta has a consensus target price of $17.67, indicating a potential upside of 23.54%. Given Covanta’s stronger consensus rating and higher possible upside, analysts plainly believe Covanta is more favorable than AES.

Dividends

AES pays an annual dividend of $0.52 per share and has a dividend yield of 4.6%. Covanta pays an annual dividend of $1.00 per share and has a dividend yield of 7.0%. AES pays out 48.1% of its earnings in the form of a dividend. Covanta pays out -270.3% 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. AES has increased its dividend for 5 consecutive years. Covanta is clearly the better dividend stock, given its higher yield and lower payout ratio.

Valuation & Earnings

This table compares AES and Covanta’s revenue, earnings per share (EPS) and valuation.

Gross Revenue Price/Sales Ratio Net Income Earnings Per Share Price/Earnings Ratio
AES $10.53 billion 0.72 -$1.16 billion $1.08 10.57
Covanta $1.75 billion 1.07 $57.00 million ($0.37) -38.65

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

Risk and Volatility

AES has a beta of 1.17, suggesting that its share price is 17% more volatile than the S&P 500. Comparatively, Covanta has a beta of 0.7, suggesting that its share price is 30% less volatile than the S&P 500.

Insider & Institutional Ownership

93.4% of AES shares are held by institutional investors. Comparatively, 91.7% of Covanta shares are held by institutional investors. 1.2% of AES shares are held by insiders. Comparatively, 11.6% of Covanta shares are held by insiders. Strong institutional ownership is an indication that large money managers, endowments and hedge funds believe a company is poised for long-term growth.

Profitability

This table compares AES and Covanta’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
AES -8.77% 16.52% 2.65%
Covanta 3.25% -13.02% -1.10%

Summary

Covanta beats AES on 9 of the 17 factors compared between the two stocks.

About AES

The AES Corporation is a holding company. The Company, through its subsidiaries and affiliates, operates a diversified portfolio of electricity generation and distribution businesses. It is organized into six strategic business units (SBUs): the United States; Andes; Brazil; Mexico, Central America and the Caribbean (MCAC); Europe, and Asia. As of December 31, 2016, its United States SBU had 18 generation facilities and two integrated utilities in the United States. As of December 31, 2016, its Andes SBU had generation facilities in three countries. Its Brazil SBU has generation and distribution businesses, Eletropaulo and Tiete. As of December 31, 2016, its MCAC SBU had a portfolio of distribution businesses and generation facilities, including renewable energy, in five countries. As of December 31, 2016, its Europe SBU had generation facilities in five countries. As of December 31, 2016, its Asia SBU had generation facilities in three countries.

About Covanta

Covanta Holding Corporation, through its subsidiaries, provides waste and energy services to municipal entities primarily in the United States and Canada. It owns and operates infrastructure for the conversion of waste to energy, as well as engages in related waste transport and disposal, and other renewable energy production businesses. The company disposes waste and generates electricity and/or steam; sells metal recovered during the energy-from-waste (EfW) process; and offers waste management solutions, such as site clean-up, wastewater treatment, transportation and logistics, recycling, and depackaging. It owns and operates 43 EfW facilities; and 5 additional energy generation facilities, including wood biomass and hydroelectric renewable energy production facilities in North America. The company also owns and operates 17 transfer stations, 19 material processing facilities, 1 regional metals recycling facility, and 4 landfills. Covanta Holding Corporation has a strategic partnership with the Green Investment Group Limited to develop, fund, and own EfW projects in Ireland and the United Kingdom. The company was formerly known as Danielson Holding Corporation and changed its name to Covanta Holding Corporation in September 2005. Covanta Holding Corporation was founded in 1960 and is headquartered in Morristown, New Jersey.

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