Investors interested in stocks from the Utility - Electric Power sector have probably already heard of RWE AG (RWEOY) and OGE Energy (OGE). But which of these two stocks is more attractive to value investors? We'll need to take a closer look to find out.
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 Zacks Rank favors stocks with strong earnings estimate revision trends, and our Style Scores highlight companies with specific traits.
RWE AG and OGE Energy are sporting Zacks Ranks of #2 (Buy) and #4 (Sell), respectively, right now. This means that RWEOY's earnings estimate revision activity has been more impressive, so investors should feel comfortable with its improving analyst outlook. 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.
RWEOY currently has a forward P/E ratio of 18.64, while OGE has a forward P/E of 18.77. We also note that RWEOY has a PEG ratio of 1.41. 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. OGE currently has a PEG ratio of 2.99.
Another notable valuation metric for RWEOY is its P/B ratio of 1.01. 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, OGE has a P/B of 1.89.
These metrics, and several others, help RWEOY earn a Value grade of B, while OGE has been given a Value grade of C.
RWEOY 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 RWEOY is likely the superior value option right now.
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This article originally published on Zacks Investment Research (zacks.com).