Is OGE Energy Corp.'s 9.5% ROE Strong Compared to Its Industry?

OGE Energy Corp. (NYSE:OGE) has long been a stalwart in the electric utility sector, providing essential services to customers across Oklahoma and western Arkansas. As of March 2025, the company's Return on Equity (ROE) stands at 9.5%, a figure that warrants a closer look in the context of its industry peers. This analysis delves into the factors influencing OGE's ROE, compares it with competitors, and explores the implications for investors.

Understanding OGE's ROE

Return on Equity is a critical metric for evaluating a company's profitability relative to its equity. For OGE Energy Corp., the 9.5% ROE as of December 31, 2024, reflects a mixed performance over the past few years. The company experienced a significant drop in net income in 2020, resulting in a negative ROE of -4.78%. Although OGE has since recovered, the impact of that year's performance may still be affecting its overall average.



Key Drivers of OGE's ROE

1. Net Income: Net income is a critical component of ROE, representing the profit available to shareholders after all expenses have been deducted. For OGE Energy Corp., net income has varied significantly over the past five years. In 2020, the company reported a net loss of $173.7 million, resulting in a negative ROE of -4.78%. This was a challenging year for the company, likely due to factors such as higher depreciation and interest expenses, as well as operational challenges. However, in 2021, net income surged to $737.3 million, leading to a strong ROE of 18.18%. This improvement was driven by exceptional load growth and higher operating revenues, which were partially offset by increased expenses. In subsequent years, net income remained positive but showed a declining trend, with $665.7 million in 2022, $416.8 million in 2023, and $441.5 million in 2024. This trend reflects the company's ability to navigate operational challenges and maintain profitability, although at a lower level than in 2021.

2. Total Stockholders' Equity: Total stockholders' equity is the other key component of ROE, representing the residual interest in the assets of the company after liabilities are paid. For OGE Energy Corp., total stockholders' equity has shown a steady increase over the past five years, from $3.63 billion in 2020 to $4.64 billion in 2024. This increase is likely due to the company's retention of earnings and issuance of new shares. The steady growth in equity has helped to stabilize the ROE, despite the fluctuations in net income. For example, in 2021, the significant increase in net income was partially offset by the increase in equity, resulting in an ROE of 18.18%. In contrast, in 2024, the lower net income was partially offset by the higher equity, resulting in an ROE of 9.51%.

Comparative Analysis with Peers

OGE Energy Corp.'s 9.5% ROE is lower than the average ROE of several of its peers in the electric utility sector. For instance, Alliant Energy Corporation has an ROE of 10.01%, CMS Energy Corporation has an ROE of 12.42%, and Ameren Corporation has an ROE of 10.07%. These figures indicate that OGE Energy Corp. is lagging behind some of its competitors in terms of profitability relative to its equity.



Factors Contributing to the Observed Differences

Several factors could contribute to the observed differences in ROE. One key factor is the company's financial performance over the past few years. OGE Energy Corp. experienced a significant drop in net income in 2020, resulting in a negative ROE of -4.78%. Although the company has since recovered and shown positive ROE figures, the impact of that year's performance may still be affecting its overall average. Additionally, the company's ROE has been fluctuating, with a peak of 18.18% in 2021 and a subsequent decline to 9.51% in 2024. This volatility suggests that OGE Energy Corp. may be facing challenges in maintaining consistent profitability.

Another factor to consider is the company's debt levels and interest expenses. OGE Energy Corp. has a debt-to-equity ratio of 1.20 and an interest coverage ratio of 2.76, which indicates that the company has a moderate level of debt and is able to cover its interest expenses. However, higher interest expenses can reduce net income and, consequently, ROE. For example, in 2024, OGE Energy Corp. recorded a net interest expense of $269.1 million, which is a significant portion of its operating income.

Furthermore, the company's investment in grid strengthening and power plant enhancements, while beneficial for reliability and customer satisfaction, may also contribute to higher depreciation and amortization expenses. These expenses can reduce net income and, consequently, ROE. For instance, in 2024, OGE Energy Corp. reported depreciation and amortization expenses of $539.5 million, which is a significant portion of its total operating expenses.

Implications for Investors

OGE Energy Corp.'s ROE performance has a significant impact on its stock valuation and investor sentiment. The positive trend in ROE and the company's ability to generate profits efficiently are encouraging signs for investors. However, the decline in ROE from its peak in 2021 and the comparison with peers may influence investor sentiment and future investment decisions. Investors should closely monitor the company's financial performance and ROE trends to make informed investment decisions.

In summary, OGE Energy Corp.'s 9.5% ROE is lower than the average ROE of some of its peers in the electric utility sector. Factors contributing to this difference include the company's financial performance over the past few years, its debt levels and interest expenses, and its investment in grid strengthening and power plant enhancements. While the company's ROE has shown fluctuations, its ability to generate profits efficiently remains a positive sign for investors. However, the decline in ROE from its peak in 2021 and the comparison with peers may influence investor sentiment and future investment decisions. Investors should closely monitor the company's financial performance and ROE trends to make informed investment decisions.