Critical Analysis: Fortis (NYSE:FTS) and CMS Energy (NYSE:CMS)

Fortis (NYSE:FTS) and CMS Energy (NYSE:CMS) are both large-cap utilities companies, but which is the better investment? We will contrast the two companies based on the strength of their analyst recommendations, valuation, profitability, risk, dividends, earnings and institutional ownership.

Risk & Volatility

Fortis has a beta of 0.43, meaning that its share price is 57% less volatile than the S&P 500. Comparatively, CMS Energy has a beta of 0.35, meaning that its share price is 65% less volatile than the S&P 500.

Profitability

This table compares Fortis and CMS Energy’s net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
Fortis	14.21%	7.25%	2.37%
CMS Energy	12.55%	12.17%	2.91%

Institutional & Insider Ownership

57.8% of Fortis shares are held by institutional investors. Comparatively, 93.6% of CMS Energy shares are held by institutional investors. 0.5% of CMS 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.

Analyst Ratings

This is a summary of current ratings and price targets for Fortis and CMS Energy, as provided by MarketBeat.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
Fortis	0	5	6	0	2.55
CMS Energy	0	6	7	0	2.54

Fortis presently has a consensus target price of $61.00, indicating a potential upside of 9.17%. CMS Energy has a consensus target price of $80.17, indicating a potential upside of 11.38%. Given CMS Energy’s higher possible upside, analysts plainly believe CMS Energy is more favorable than Fortis.

Valuation & Earnings

This table compares Fortis and CMS Energy”s revenue, earnings per share (EPS) and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
Fortis	$8.71 billion	3.27	$1.29 billion	$2.46	22.71
CMS Energy	$8.54 billion	2.60	$1.07 billion	$3.62	19.88

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

Dividends

Fortis pays an annual dividend of $1.89 per share and has a dividend yield of 3.4%. CMS Energy pays an annual dividend of $2.28 per share and has a dividend yield of 3.2%. Fortis pays out 76.8% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. CMS Energy pays out 63.0% of its earnings in the form of a dividend. Fortis has increased its dividend for 5 consecutive years and CMS Energy has increased its dividend for 3 consecutive years. Fortis is clearly the better dividend stock, given its higher yield and longer track record of dividend growth.

Summary

Fortis beats CMS Energy on 9 of the 17 factors compared between the two stocks.

About Fortis

Fortis Inc. operates as an electric and gas utility company in Canada, the United States, and the Caribbean countries. It generates, transmits, and distributes electricity to approximately 447,000 retail customers in southeastern Arizona; and 103,000 retail customers in Arizona's Mohave and Santa Cruz counties with an aggregate capacity of 3,408 megawatts (MW), including 68 MW of solar capacity and 250 MV of wind capacity. The company also sells wholesale electricity to other entities in the western United States; owns gas-fired and hydroelectric generating capacity totaling 65 MW; and distributes natural gas to approximately 1,087,000 residential, commercial, and industrial customers in British Columbia, Canada. In addition, it owns and operates the electricity distribution system that serves approximately 592,000 customers in southern and central Alberta; owns four hydroelectric generating facilities with a combined capacity of 225 MW; and provides operation, maintenance, and management services to five hydroelectric generating facilities. Further, the company distributes electricity in the island portion of Newfoundland and Labrador with an installed generating capacity of 145 MW; and on Prince Edward Island with a generating capacity of 90 MW. Additionally, it provides integrated electric utility service to approximately 69,000 customers in Ontario; approximately 275,000 customers in Newfoundland and Labrador; approximately 34,000 customers on Grand Cayman, Cayman Islands; and approximately 17,000 customers on certain islands in Turks and Caicos. It also holds long-term contracted generation assets in Belize consisting of 3 hydroelectric generating facilities with a combined capacity of 51 MW; and the Aitken Creek natural gas storage facility. It also owns and operates approximately 90,500 circuit Kilometers (km) of distribution lines; and approximately 51,600 km of natural gas pipelines. Fortis Inc. was founded in 1885 and is headquartered in St. John's, Canada.

About CMS Energy

CMS Energy Corporation operates as an energy company primarily in Michigan. The company operates through three segments: Electric Utility; Gas Utility; and Enterprises. The Electric Utility segment is involved in the generation, purchase, transmission, distribution, and sale of electricity. This segment generates electricity through coal, wind, gas, renewable energy, oil, and nuclear sources. Its distribution system comprises 208 miles of high-voltage distribution overhead lines; 4 miles of high-voltage distribution underground lines; 4,428 miles of high-voltage distribution overhead lines; 19 miles of high-voltage distribution underground lines; 82,474 miles of electric distribution overhead lines; 9,395 miles of underground distribution lines; 1,093 substations; and 3 battery facilities. The Gas Utility segment engages in the purchase, transmission, storage, distribution, and sale of natural gas, which includes 2,392 miles of transmission lines; 15 gas storage fields; 28,065 miles of distribution mains; and 8 compressor stations. The Enterprises segment is involved in the independent power production and marketing, including the development and operation of renewable generation. It serves 1.9 million electric and 1.8 million gas customers, including residential, commercial, and diversified industrial customers. The company was incorporated in 1987 and is headquartered in Jackson, Michigan.