Investors looking for stocks in the Utility - Electric Power sector might want to consider either Huaneng Power (HNP) or Southern Co. (SO). But which of these two stocks presents investors with the better value opportunity right now? Let's 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 proven Zacks Rank puts an emphasis on earnings estimates and estimate revisions, while our Style Scores work to identify stocks with specific traits.
Huaneng Power has a Zacks Rank of #1 (Strong Buy), while Southern Co. has a Zacks Rank of #2 (Buy) right now. This means that HNP's earnings estimate revision activity has been more impressive, so investors should feel comfortable with its improving analyst outlook. However, value investors will care about much more than just this.
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 Style Score Value grade factors in a variety of key fundamental metrics, including the popular P/E ratio, P/S ratio, earnings yield, cash flow per share, and a number of other key stats that are commonly used by value investors.
HNP currently has a forward P/E ratio of 12.37, while SO has a forward P/E of 16.15. We also note that HNP has a PEG ratio of 0.94. 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. SO currently has a PEG ratio of 3.59.
Another notable valuation metric for HNP is its P/B ratio of 0.66. 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, SO has a P/B of 1.78.
These are just a few of the metrics contributing to HNP's Value grade of A and SO's Value grade of C.
HNP is currently sporting an improving earnings outlook, which makes it stick out in our Zacks Rank model. And, based on the above valuation metrics, we feel that HNP is likely the superior value option right now.
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Huaneng Power International, Inc. (HNP) : Free Stock Analysis Report
Southern Company (The) (SO) : Free Stock Analysis Report
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