DTE vs. AEP: Which Stock Is the Better Value Option?
Investors looking for stocks in the Utility - Electric Power sector might want to consider either DTE Energy (DTE) or American Electric Power (AEP). But which of these two stocks is more attractive to value investors? We'll need to take a closer look to find out.
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.
Currently, DTE Energy has a Zacks Rank of #2 (Buy), while American Electric Power has a Zacks Rank of #3 (Hold). The Zacks Rank favors stocks that have recently seen positive revisions to their earnings estimates, so investors should rest assured that DTE has an improving earnings outlook. However, value investors will care about much more than just this.
Value investors also tend to look at a number of traditional, tried-and-true figures to help them find stocks that they believe are undervalued at their current share price levels.
The Value category of the Style Scores system identifies undervalued companies by looking at a number of key metrics. These include the long-favored P/E ratio, P/S ratio, earnings yield, cash flow per share, and a variety of other fundamentals that help us determine a company's fair value.
DTE currently has a forward P/E ratio of 20.97, while AEP has a forward P/E of 21.91. We also note that DTE has a PEG ratio of 3.49. This figure is similar to the commonly-used P/E ratio, with the PEG ratio also factoring in a company's expected earnings growth rate. AEP currently has a PEG ratio of 3.88.
Another notable valuation metric for DTE is its P/B ratio of 2.17. The P/B is a method of comparing a stock's market value to its book value, which is defined as total assets minus total liabilities. By comparison, AEP has a P/B of 2.33.
These metrics, and several others, help DTE earn a Value grade of B, while AEP has been given a Value grade of D.
DTE sticks out from AEP in both our Zacks Rank and Style Scores models, so value investors will likely feel that DTE is the better option right now.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.