Critical Analysis: Avista (AVA) versus United Utilities Group (UUGRY)

Avista (NYSE: AVA) and United Utilities Group (OTCMKTS:UUGRY) are both mid-cap utilities companies, but which is the superior business? We will contrast the two companies based on the strength of their dividends, valuation, earnings, profitability, analyst recommendations, risk and institutional ownership.

Profitability

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This table compares Avista and United Utilities Group’s net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
Avista	7.66%	7.25%	2.27%
United Utilities Group	N/A	N/A	N/A

Analyst Recommendations

This is a summary of recent ratings and price targets for Avista and United Utilities Group, as reported by MarketBeat.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
Avista	1	2	0	0	1.67
United Utilities Group	0	5	2	0	2.29

Avista currently has a consensus price target of $46.50, indicating a potential downside of 11.95%. Given Avista’s higher possible upside, equities research analysts clearly believe Avista is more favorable than United Utilities Group.

Insider & Institutional Ownership

77.7% of Avista shares are owned by institutional investors. Comparatively, 0.2% of United Utilities Group shares are owned by institutional investors. 1.1% of Avista shares are owned by company insiders. Strong institutional ownership is an indication that hedge funds, large money managers and endowments believe a stock will outperform the market over the long term.

Earnings & Valuation

This table compares Avista and United Utilities Group’s revenue, earnings per share and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
Avista	$1.45 billion	2.40	$115.91 million	$1.95	27.08
United Utilities Group	$2.30 billion	3.06	$470.21 million	N/A	N/A

United Utilities Group has higher revenue and earnings than Avista.

Dividends

Avista pays an annual dividend of $1.49 per share and has a dividend yield of 2.8%. United Utilities Group pays an annual dividend of $1.01 per share and has a dividend yield of 4.9%. Avista pays out 76.4% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. Avista has raised its dividend for 15 consecutive years.

Volatility and Risk

Avista has a beta of 0.32, indicating that its share price is 68% less volatile than the S&P 500. Comparatively, United Utilities Group has a beta of 0.57, indicating that its share price is 43% less volatile than the S&P 500.

Summary

United Utilities Group beats Avista on 8 of the 15 factors compared between the two stocks.

About Avista

Avista Corporation operates as an electric and natural gas utility company. It operates through two segments, Avista Utilities and AEL&P. The Avista Utilities segment provides electric distribution and transmission, and natural gas distribution services in parts of eastern Washington and northern Idaho; and natural gas distribution services in parts of northeastern and southwestern Oregon, as well as generates electricity in Washington, Idaho, Oregon, and Montana. This segment also engages in the wholesale purchase and sale of electricity and natural gas. The AEL&P segment offers electric services to approximately 17,000 customers in the city and borough of Juneau, Alaska. The company generates electricity through hydro, thermal, and wind facilities. As of February 21, 2018, it supplied retail electric services to approximately 382,000 customers and retail natural gas service to approximately 347,000 customers. In addition, the company engages in sheet metal fabrication, venture fund investments, real estate investments, and other investments. Avista Corporation was founded in 1889 and is headquartered in Spokane, Washington.

About United Utilities Group

United Utilities Group PLC provides water and wastewater services in the United Kingdom. It is also involved in renewable energy generation, corporate trustee, and property management activities; and the provision of consulting and project management services. The company operates 43,000 kilometers (km) of pipes; 77,000 km of sewerage pipes; 567 wastewater treatment works; and 91 water treatment works. It serves 3 million households and 200,000 business customers. United Utilities Group PLC was incorporated in 2008 and is based in Warrington, the United Kingdom.

Fiat Chrysler to Form U.S. Finance Arm; in Talks With Santander

Fiat Chrysler Automobiles NV plans to form its own financing business in the U.S. and has started discussions with partner Santander Consumer USA Holdings Inc., which it has an option to buy out.

That would allow Fiat Chrysler to “participate more fully in capturing value from emerging platforms,” Chief Financial Officer Richard Palmer said Friday in a presentation near Turin, Italy, confirming a Bloomberg report earlier in the week that the automaker was considering such a plan.

Buying out Dallas-based Santander Consumer could add $500 million to $800 million in incremental pretax earnings within four years, Palmer said. Fiat could also start its own business, in which case the automaker envisions about $100 million in incremental profit, he said.

Fiat Chrysler shares fell 4.1 percent to $22.27 at 10:07 a.m. in New York, while Santander Consumer gained 2.5 percent, after tumbling as much as 9.6 percent on Wednesday following the Bloomberg report.

Fiat Chrysler exiting its deal “would require some payment above book value” to Santander Consumer, Kevin Barker, a Piper Jaffray & Co. analyst, said in a note. Given the cost, a full buyout “is a low probability,” he said, adding “we would be buyers” of Santander based on the news.

Sergio Marchionne, the automaker’s chief executive officer, told investors Friday he’ll institute a dividend for the first time since Fiat and Chrysler merged in 2014. The firm said it aims to double profit over the next five years, generating about 30 billion euros ($35 billion) in industrial free cash flow in that span. Fiat Chrysler has no plans to spin off its Alfa Romeo and Maserati brands, Marchionne said.

Santander has struggled to reach market share targets that it set along with Fiat Chrysler as part of the 10-year financing agreement the two companies signed in 2013. The lender financed 28 percent of Fiat Chrysler’s total loans and leases as of the end of December, well short of a goal to reach 65 percent by the end of April, according to a regulatory filing.

Last August, Santander’s new CEO, Scott Powell, met with Fiat Chrysler executives during his first day on the job to find ways to capture more business.

“There are a number of possibilities for the next phase of our relationship,” Santander said in an emailed statement. “In the meantime, we remain focused on providing Chrysler dealers and customers with the same superior service they have come to expect.”

Santander Consumer will hold a conference call to discuss the matter at noon New York time, the company said in a separate statement.

Missed Targets

Chrysler Capital hasn't performed like a captive for Fiat Chrysler

Source: Santander regulatory filing

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The lender’s financing agreement with Fiat Chrysler can be terminated if Chrysler Capital fails to meet origination goals within the first five years, according to Santander filings, which note that this could have a “materially adverse impact” on its business.

In forming its own captive lender, Fiat Chrysler could also pose problems for Ally Financial Inc. The bank originated $2.44 billion of loans and leases for Fiat Chrysler dealers last year, which was more than a quarter of its consumer automotive business, according to a regulatory filing.

Ally shares slipped 2 cents to $25.63 in New York. The Detroit-based company said in an emailed statement that it’s created a strong business as an independent competitor and will continue to support Fiat Chrysler dealers.

— With assistance by Jennifer Surane

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