Investors interested in stocks from the Utility - Electric Power sector have probably already heard of Pinnacle West (PNW) and 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.
Currently, both Pinnacle West and Southern Co. are holding a Zacks Rank of # 2 (Buy). The Zacks Rank favors stocks that have recently seen positive revisions to their earnings estimates, so investors should rest assured that both of these companies have improving earnings outlooks. 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.
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.
PNW currently has a forward P/E ratio of 18.04, while SO has a forward P/E of 19.71. We also note that PNW has a PEG ratio of 3.67. 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 4.38.
Another notable valuation metric for PNW is its P/B ratio of 1.75. 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 2.07.
Based on these metrics and many more, PNW holds a Value grade of B, while SO has a Value grade of C.
Both PNW and SO are impressive stocks with solid earnings outlooks, but based on these valuation figures, we feel that PNW is the superior value option right now.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Pinnacle West Capital Corporation (PNW) : Free Stock Analysis Report
Southern Company (The) (SO) : Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment Research