Investors with an interest in Utility - Electric Power stocks have likely encountered both Edison International (EIX) and Black Hills (BKH). But which of these two companies is the best option for those looking for undervalued stocks? 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 favors stocks with strong earnings estimate revision trends, and our Style Scores highlight companies with specific traits.
Currently, Edison International has a Zacks Rank of #2 (Buy), while Black Hills 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 EIX has an improving earnings outlook. 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.
EIX currently has a forward P/E ratio of 11.77, while BKH has a forward P/E of 18.92. We also note that EIX has a PEG ratio of 1.98. 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. BKH currently has a PEG ratio of 4.17.
Another notable valuation metric for EIX is its P/B ratio of 1.22. 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, BKH has a P/B of 1.81.
Based on these metrics and many more, EIX holds a Value grade of A, while BKH has a Value grade of C.
EIX sticks out from BKH in both our Zacks Rank and Style Scores models, so value investors will likely feel that EIX 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.