Investors with an interest in Utility - Gas Distribution stocks have likely encountered both UGI (UGI) and Atmos Energy (ATO). But which of these two companies is the best option for those looking for undervalued stocks? Let's take a closer look.
There are plenty of strategies for discovering value stocks, but we have found that pairing a strong Zacks Rank with an impressive grade in the Value category of our Style Scores system produces the best returns. The proven Zacks Rank emphasizes companies with positive estimate revision trends, and our Style Scores highlight stocks with specific traits.
Both UGI and Atmos Energy have a Zacks Rank of # 2 (Buy) right now. 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. 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.
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.
UGI currently has a forward P/E ratio of 11.69, while ATO has a forward P/E of 22.06. We also note that UGI has a PEG ratio of 2.25. 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. ATO currently has a PEG ratio of 3.07.
Another notable valuation metric for UGI is its P/B ratio of 1.54. 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, ATO has a P/B of 1.92.
Based on these metrics and many more, UGI holds a Value grade of A, while ATO has a Value grade of D.
Both UGI and ATO are impressive stocks with solid earnings outlooks, but based on these valuation figures, we feel that UGI is the superior value option right now.
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Atmos Energy Corporation (ATO) : Free Stock Analysis Report
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.
