DTE Energy vs. Brookfield Infrastructure: Which Utility’s Stock is a Better Buy?

Brookfield Infrastructure Corporation (BIPC) owns and operates regulated natural gas transmission systems in Brazil. The New York City-based company also engages in regulated gas and electricity distribution operations in the United Kingdom. In comparison, DTE Energy Company (DTE) in Detroit, Mich., participates in utility operations. The company operates in five segments: Electric; Gas; Gas Storage and Pipelines; Power and Industrial Projects; and Energy Trading.

The utility sector consists of companies that provide water, electricity, and natural gas services. While other industries were negatively affected by the COVID-19 pandemic last year, the utility sector was stable because the demand for these services was unchanged. 

Considering the current market volatility, which is in large measure due to the resurgence of COVID-19 cases and high inflation, investing in the utility sector could be beneficial now. Also, President Biden’s recently passed $1 trillion infrastructure bill is expected to boost the utility industry's growth in the coming years. Therefore, we think both BIPC and DTE should benefit.

DTE has gained 0.8% in price over the past month, while BIPC has witnessed a loss.

Click here to check out our Infrastructure Sector Report for 2021

But which of these two stocks is a better buy now? Let’s find out.

Latest Developments

On October 19, 2021, Sam Pollock, Chief Executive Officer of Brookfield Infrastructure, said, “Looking ahead, we are confident in our ability to capitalize on new investment opportunities of scale across our target sectors and geographies.”

On October 18, 2021, DTE announced it would complete a 40% increase in its renewable energy capacity this year. The 535-megawatt expansion includes three wind parks that began operating in the spring and one solar park that will come online before the end of the year. Jerry Norcia, president and CEO of DTE, said, “As the state’s leading investor in and producer of renewable energy, DTE is committed to transitioning Michigan to a clean energy future while maintaining our focus on safety, reliability, and affordability.”

Recent Financial Results

BPIC’s revenues increased 33% year-over-year to $2.94 billion for its fiscal third quarter, ended September 30, 2021. The company’s adjusted EBITDA grew 22.9% year-over-year to $596 million, while its net income came in at $413 million, representing an 8,160% year-over-year increase. Also, its EPS was  $0.72 compared to a  $0.12 loss in the year-ago period.

DTE’s operating earnings decreased 19.5% year-over-year to $334 million for its fiscal third quarter, ended September 30, 2021. The company’s net income declined 94.7% year-over-year to $25 million. Also, its EPS came in at $0.13, down 94.7% year-over-year.

Profitability

DTE’s $14.15 billion trailing-12-month revenue is significantly higher than BIPC’s $1.60 billion. However, BIPC is more profitable, with gross profit  and EBITDA margins of 82.54% and 79.93%, respectively, compared to DTE’s 27.20% and 21.31%.

Furthermore, BIPC’s ROA and ROTC of 6.95% and 20.24%, respectively, are higher than DTE’s 2.80% and 4.02%

Valuation

In terms of forward P/CF, DTE is currently trading at 6.73x, which is 13.7% higher than BIPC’s 5.92x. And  DTE’s 13.04x forward EV/EBITDA ratio  is 93.2% higher than BIPC’s 6.75x.

So, BIPC is relatively affordable here.

POWR Ratings

BIPC has an overall B rating, which equates to a Buy in our proprietary POWR Ratings system. In comparison, DTE has an overall C rating, which translates to Neutral. The POWR Ratings are calculated considering 118 distinct factors, with each factor weighted to an optimal degree.

BIPC has a B grade for Quality. This is justified given BIPC's 62.41% trailing-12-month EBIT margin, which is 198.5% higher than the 20.91% industry average. In contrast,  DTE has a Quality grade of D, which is in sync with its 13.30% trailing-12-month EBIT margin, which is 36.4% lower than the 20.91% industry average.

Of the 57 stocks in the Utilities - Domestic industry, BIPC is ranked first. In comparison, DTE is ranked #26.

Beyond what I have stated above, we have also rated the stocks for Growth, Value, Momentum, Stability, and Sentiment. Click here to view all the BIPC ratings. Also, get all the DTE ratings here.

The Winner

The utility industry is expected to grow steadily with increasing government investment worldwide. While both BIPC and DTE are expected to benefit, we think it is better to bet on BIPC now because of its lower valuation, higher profit margin, and robust financials.

Our research shows that odds of success increase when one invests in stocks with an Overall Rating of Strong Buy or Buy. View all the other top-rated stocks in the Utilities - Domestic industry here.

Click here to check out our Infrastructure Sector Report for 2021

DTE shares were trading at $114.84 per share on Wednesday afternoon, down $0.17 (-0.15%). Year-to-date, DTE has gained 16.27%, versus a 26.50% rise in the benchmark S&P 500 index during the same period.

Nimesh Jaiswal's fervent interest in analyzing and interpreting financial data led him to a career as a financial analyst and journalist. The importance of financial statements in driving a stock’s price is the key approach that he follows while advising investors in his articles.

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