Investors with an interest in Utility - Electric Power stocks have likely encountered both NRG Energy (NRG) and MGE (MGEE). But which of these two companies is the best option for those looking for undervalued stocks? Let's take a closer look.
Everyone has their own methods for finding great value opportunities, but our model includes pairing an impressive grade in the Value category of our Style Scores system with a strong Zacks Rank. 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.
Both NRG Energy and MGE have a Zacks Rank of # 1 (Strong Buy) right now. This system places an emphasis on companies that have seen positive earnings estimate revisions, so investors should feel comfortable knowing that these stocks have improving earnings outlooks. 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.
NRG currently has a forward P/E ratio of 6.84, while MGEE has a forward P/E of 21.03. We also note that NRG has a PEG ratio of 0.57. 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. MGEE currently has a PEG ratio of 4.98.
Another notable valuation metric for NRG is its P/B ratio of 1.58. 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, MGEE has a P/B of 2.48.
Based on these metrics and many more, NRG holds a Value grade of A, while MGEE has a Value grade of F.
Both NRG and MGEE are impressive stocks with solid earnings outlooks, but based on these valuation figures, we feel that NRG is the superior value 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.
