Investors interested in Utility - Electric Power stocks are likely familiar with AES (AES) and NextEra Energy (NEE). But which of these two stocks presents investors with the better value opportunity right now? Let's take a closer look.
We have found that the best way to discover great value opportunities is to pair a strong Zacks Rank with a great grade in the Value category of our Style Scores system. The Zacks Rank is a proven strategy that targets companies with positive earnings estimate revision trends, while our Style Scores work to grade companies based on specific traits.
Right now, both AES and NextEra Energy are sporting a Zacks Rank of #2 (Buy). Investors should feel comfortable knowing that both of these stocks have an improving earnings outlook since the Zacks Rank favors companies that have witnessed positive analyst estimate revisions. But this is only part of the picture for value investors.
Value investors analyze a variety of traditional, tried-and-true metrics to help find companies that they believe are undervalued at their current share price levels.
Our Value category highlights undervalued companies by looking at a variety of key metrics, including the popular P/E ratio, as well as the P/S ratio, earnings yield, cash flow per share, and a variety of other fundamentals that have been used by value investors for years.
AES currently has a forward P/E ratio of 6.65, while NEE has a forward P/E of 22.36. We also note that AES has a PEG ratio of 0.60. This popular metric is similar to the widely-known P/E ratio, with the difference being that the PEG ratio also takes into account the company's expected earnings growth rate. NEE currently has a PEG ratio of 2.77.
Another notable valuation metric for AES is its P/B ratio of 1.36. Investors use the P/B ratio to look at a stock's market value versus its book value, which is defined as total assets minus total liabilities. By comparison, NEE has a P/B of 2.8.
These metrics, and several others, help AES earn a Value grade of A, while NEE has been given a Value grade of D.
Both AES and NEE are impressive stocks with solid earnings outlooks, but based on these valuation figures, we feel that AES is the superior value option right now.
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This article originally published on Zacks Investment Research (zacks.com).
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
