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HNP vs. SO: Which Stock Is the Better Value Option?

Zacks Equity Research

Investors with an interest in Utility - Electric Power stocks have likely encountered both Huaneng Power (HNP) and Southern Co. (SO). But which of these two companies is the best option for those looking for undervalued stocks? Let's take a closer look.

Everyone has their own methods for finding great value opportunities, but our model includes pairing an impressive grade in the Value category of our Style Scores system with a strong Zacks Rank. 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 and Southern Co. are both sporting a Zacks Rank of # 1 (Strong Buy) right now. This system places an emphasis on companies that have seen positive earnings estimate revisions, so investors should feel comfortable knowing that these stocks have improving earnings outlooks. But this is only part of the picture 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.

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.

HNP currently has a forward P/E ratio of 12.81, while SO has a forward P/E of 15.55. We also note that HNP has a PEG ratio of 0.98. This figure is similar to the commonly-used P/E ratio, with the PEG ratio also factoring in a company's expected earnings growth rate. SO currently has a PEG ratio of 3.46.

Another notable valuation metric for HNP is its P/B ratio of 0.68. 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, SO has a P/B of 1.72.

Based on these metrics and many more, HNP holds a Value grade of A, while SO has a Value grade of C.

Both HNP and SO are impressive stocks with solid earnings outlooks, but based on these valuation figures, we feel that HNP is the superior value option right now.


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