Investors with an interest in Utility - Gas Distribution stocks have likely encountered both Southwest Gas (SWX) and Northwest Natural (NWN). But which of these two companies is the best option for those looking for undervalued stocks? Let's take a closer look.
The best way to find great value stocks is to pair a strong Zacks Rank with an impressive grade in the Value category of our Style Scores system. The Zacks Rank is a proven strategy that targets companies with positive earnings estimate revision trends, while our Style Scores work to grade companies based on specific traits.
Right now, Southwest Gas is sporting a Zacks Rank of #2 (Buy), while Northwest Natural has a Zacks Rank of #4 (Sell). This system places an emphasis on companies that have seen positive earnings estimate revisions, so investors should feel comfortable knowing that SWX is likely seeing its earnings outlook improve to a greater extent. But this is only part of the picture for value investors.
Value investors also try to analyze a wide range of traditional figures and metrics to help determine whether a company is undervalued at its 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.
SWX currently has a forward P/E ratio of 21.28, while NWN has a forward P/E of 28.86. We also note that SWX has a PEG ratio of 5.32. 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. NWN currently has a PEG ratio of 6.66.
Another notable valuation metric for SWX is its P/B ratio of 2.04. 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, NWN has a P/B of 2.50.
These are just a few of the metrics contributing to SWX's Value grade of B and NWN's Value grade of D.
SWX 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 SWX is likely the superior value option right now.
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Southwest Gas Corporation (SWX) : Free Stock Analysis Report
Northwest Natural Gas Company (NWN) : Free Stock Analysis Report
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