Investors looking for stocks in the Utility - Electric Power sector might want to consider either DTE Energy (DTE) or Alliant Energy (LNT). But which of these two stocks presents investors with the better value opportunity right now? 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 Zacks Rank favors stocks with strong earnings estimate revision trends, and our Style Scores highlight companies with specific traits.
DTE Energy has a Zacks Rank of #2 (Buy), while Alliant Energy has a Zacks Rank of #3 (Hold) right now. The Zacks Rank favors stocks that have recently seen positive revisions to their earnings estimates, so investors should rest assured that DTE has an improving earnings outlook. But this is just one piece of the puzzle 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 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.
DTE currently has a forward P/E ratio of 18.41, while LNT has a forward P/E of 20.38. We also note that DTE has a PEG ratio of 3.45. 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. LNT currently has a PEG ratio of 3.71.
Another notable valuation metric for DTE is its P/B ratio of 2. 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, LNT has a P/B of 2.34.
These metrics, and several others, help DTE earn a Value grade of B, while LNT has been given a Value grade of C.
DTE has seen stronger estimate revision activity and sports more attractive valuation metrics than LNT, so it seems like value investors will conclude that DTE is the superior option right now.
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