Investors interested in stocks from the Utility - Electric Power sector have probably already heard of Southern Co. (SO) and American Electric Power (AEP). But which of these two stocks offers value investors a better bang for their buck right now? We'll need to 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, both Southern Co. and American Electric Power are holding a Zacks Rank of # 2 (Buy). This means that both companies have witnessed positive earnings estimate revisions, so investors should feel comfortable knowing that both of these stocks have an improving earnings outlook. But this is just one factor that value investors are interested in.
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.
SO currently has a forward P/E ratio of 15.14, while AEP has a forward P/E of 18.81. We also note that SO has a PEG ratio of 3.37. This metric is used similarly to the famous P/E ratio, but the PEG ratio also takes into account the stock's expected earnings growth rate. AEP currently has a PEG ratio of 3.38.
Another notable valuation metric for SO is its P/B ratio of 1.74. 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, AEP has a P/B of 1.93.
These metrics, and several others, help SO earn a Value grade of B, while AEP has been given a Value grade of C.
Both SO and AEP are impressive stocks with solid earnings outlooks, but based on these valuation figures, we feel that SO is the superior value option right now.
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