Investors with an interest in Utility - Water Supply stocks have likely encountered both California Water Service Group (CWT) and American Water Works (AWK). But which of these two stocks is more attractive to value investors? We'll need to take a closer look to find out.
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 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.
California Water Service Group and American Water Works are sporting Zacks Ranks of #2 (Buy) and #4 (Sell), respectively, right now. This means that CWT's earnings estimate revision activity has been more impressive, so investors should feel comfortable with its improving analyst outlook. But this is just one factor that value investors are interested in.
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.
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.
CWT currently has a forward P/E ratio of 19.51, while AWK has a forward P/E of 21.62. We also note that CWT has a PEG ratio of 1.84. 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. AWK currently has a PEG ratio of 2.86.
Another notable valuation metric for CWT is its P/B ratio of 1.78. 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, AWK has a P/B of 2.33.
Based on these metrics and many more, CWT holds a Value grade of B, while AWK has a Value grade of D.
CWT 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 CWT is likely the superior value option right now.
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California Water Service Group (CWT): Free Stock Analysis Report
American Water Works Company, Inc. (AWK): Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).