Investors interested in stocks from the Utility - Electric Power sector have probably already heard of FirstEnergy (FE) and 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.
The best way to find great value stocks is to pair a strong Zacks Rank with an impressive 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.
FirstEnergy has a Zacks Rank of #2 (Buy), while American Electric Power has a Zacks Rank of #3 (Hold) right now. This means that FE's earnings estimate revision activity has been more impressive, so investors should feel comfortable with its improving analyst outlook. But this is only part of the picture for value investors.
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 Style Score Value grade factors in a variety of key fundamental metrics, including the popular P/E ratio, P/S ratio, earnings yield, cash flow per share, and a number of other key stats that are commonly used by value investors.
FE currently has a forward P/E ratio of 17.48, while AEP has a forward P/E of 19.32. We also note that FE has a PEG ratio of 2.71. 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 2.98.
Another notable valuation metric for FE is its P/B ratio of 1.81. The P/B ratio pits a stock's market value against its book value, which is defined as total assets minus total liabilities. For comparison, AEP has a P/B of 1.94.
These metrics, and several others, help FE earn a Value grade of B, while AEP has been given a Value grade of C.
FE stands above AEP thanks to its solid earnings outlook, and based on these valuation figures, we also feel that FE 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.
