Investors looking for stocks in the Utility - Gas Distribution sector might want to consider either MDU Resources (MDU) or 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 puts an emphasis on earnings estimates and estimate revisions, while our Style Scores work to identify stocks with specific traits.
MDU Resources and Atmos Energy are both sporting 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 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.
MDU currently has a forward P/E ratio of 19.28, while ATO has a forward P/E of 22.98. We also note that MDU has a PEG ratio of 2.72. This popular metric is similar to the widely-known P/E ratio, with the difference being that the PEG ratio also takes into account the company's expected earnings growth rate. ATO currently has a PEG ratio of 3.21.
Another notable valuation metric for MDU is its P/B ratio of 2.07. The P/B is a method of comparing a stock's market value to its book value, which is defined as total assets minus total liabilities. By comparison, ATO has a P/B of 2.20.
These are just a few of the metrics contributing to MDU's Value grade of B and ATO's Value grade of C.
Both MDU and ATO are impressive stocks with solid earnings outlooks, but based on these valuation figures, we feel that MDU is the superior value option right now.
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MDU Resources Group, Inc. (MDU) : Free Stock Analysis Report
Atmos Energy Corporation (ATO) : Free Stock Analysis Report
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