Archaea Energy vs. Brookfield Infrastructure: Which Utilities Stock is a Better Buy?

New York City-based Brookfield Infrastructure Corporation (BIPC) owns and operates regulated natural gas transmission systems in Brazil. The company also engages in regulated gas and electricity distribution operations in the United Kingdom. In comparison, Archaea Energy Inc. (LFG), which is headquartered in Canonsburg, Pa., operates as a renewable natural gas producer in the United States. The company develops, constructs, and operates RNG facilities to capture waste emissions and convert them into low-carbon fuel.

The utility sector was negatively affected by the COVID-19 pandemic last year as demand for utility services from industrial and commercial establishments decreased due to trade restrictions, halted operations, and government-imposed lockdowns. However, rising investments in renewable power generation capacities and rapid digital transformation are expected to drive the growth of the utility market. Also, within the $1 trillion bipartisan infrastructure bill, $550 billion is earmarked to boost the utility industry's growth in the coming years. According to a Research and Markets report, the global utility market is expected to grow at a 7% CAGR by 2025. Therefore, we think both BIPC and LFG should benefit.

LFG shares have gained 80.3% in price over the past nine months, while BIPC has generated negative returns. Also, BIPC’s 15.4% gains over the past month compare with LFG’s negative returns. Furthermore, BIPC is the clear winner with 16.9% gains versus LFG’s negative returns over the past three months.

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

Latest Developments

On November 3, Sam Pollock, CEO of BIPC, said, “The successful acquisition of Inter Pipeline marked a significant milestone for Brookfield Infrastructure, and third-quarter results were supported by its initial contribution, as well as strong organic growth within our base business. Looking ahead, we are confident in our ability to capitalize on new investment opportunities of scale across our target sectors and geographies.”

On November 15, 2021, LFG announced that its subsidiary, Archaea Holdings, LLC had entered a long-term RNG purchase and sale agreement with Northwest Natural Gas Company, a subsidiary of NW Natural Holdings (NWN). Nick Stork, LFG’s co-founder and CEO, said, "This agreement, our first with a U.S. utility, is a testament to the strength of our commercial offerings and highlights our ability to help utilities provide lower carbon options to their customers and achieve their sustainability goals."

Recent Financial Results

BIPC’s revenues increased 18.6% year-over-year to $414 million for its fiscal third quarter, ended September 30, 2021. The company’s adjusted EBITDA grew 18.3% year-over-year to $149 million, while its net income came in at $213 million, compared to a $222 million loss in the prior-year quarter.

LFG’s total revenue and other income increased 529.5% year-over-year to $11.99 million for its fiscal third quarter, ended September 30, 2021. However, its operating loss grew 1,499.8% year-over-year to $9.42 million, while its net loss came in at $21.34 million, representing a 3,445% year-over-year increase.

POWR Ratings

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

BIPC has a B grade for Growth. In contrast, LFG has a C grade for Growth. Furthermore, BIPC has a B grade for Quality, while LFG has a Quality grade of F.

Of 58 stocks in the Utilities - Domestic industry, BIPC is ranked first. In comparison, LFG is ranked last.

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

The Winner

The utility industry is expected to grow steadily with increasing government investments and technological advances. While both BIPC and LFG are expected to benefit, we think it is better to bet on BIPC now because of its superior 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.

BIPC shares were trading at $67.38 per share on Wednesday morning, down $0.43 (-0.63%). Year-to-date, BIPC has declined -3.09%, versus a 29.31% 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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