Investors interested in stocks from the Utility - Electric Power sector have probably already heard of Southern Co. (SO) and Black Hills (BKH). 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 proven Zacks Rank puts an emphasis on earnings estimates and estimate revisions, while our Style Scores work to identify stocks with specific traits.
Right now, both Southern Co. and Black Hills are sporting a Zacks Rank of # 2 (Buy). Investors should feel comfortable knowing that both of these stocks have an improving earnings outlook since the Zacks Rank favors companies that have witnessed positive analyst estimate revisions. However, value investors will care about much more than just this.
Value investors are also interested in a number of tried-and-true valuation metrics that help show when a company is undervalued at its 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.
SO currently has a forward P/E ratio of 15.20, while BKH has a forward P/E of 19.14. We also note that SO has a PEG ratio of 3.38. This popular figure is similar to the widely-used P/E ratio, but the PEG ratio also considers a company's expected EPS growth rate. BKH currently has a PEG ratio of 4.27.
Another notable valuation metric for SO is its P/B ratio of 1.69. The P/B ratio is used to compare a stock's market value with its book value, which is defined as total assets minus total liabilities. For comparison, BKH has a P/B of 1.82.
These are just a few of the metrics contributing to SO's Value grade of B and BKH's Value grade of C.
Both SO and BKH 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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