Investors interested in stocks from the Utility - Electric Power sector have probably already heard of FirstEnergy (FE) and NextEra Energy (NEE). 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 proven Zacks Rank emphasizes companies with positive estimate revision trends, and our Style Scores highlight stocks with specific traits.
Currently, FirstEnergy has a Zacks Rank of #2 (Buy), while NextEra Energy has a Zacks Rank of #3 (Hold). The Zacks Rank favors stocks that have recently seen positive revisions to their earnings estimates, so investors should rest assured that FE has an improving earnings 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.
FE currently has a forward P/E ratio of 17.93, while NEE has a forward P/E of 23.49. We also note that FE has a PEG ratio of 2.35. This popular figure is similar to the widely-used P/E ratio, but the PEG ratio also considers a company's expected EPS growth rate. NEE currently has a PEG ratio of 2.76.
Another notable valuation metric for FE is its P/B ratio of 2.01. 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, NEE has a P/B of 2.95.
Based on these metrics and many more, FE holds a Value grade of B, while NEE has a Value grade of D.
FE has seen stronger estimate revision activity and sports more attractive valuation metrics than NEE, so it seems like value investors will conclude that FE is the superior option right now.
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FirstEnergy Corporation (FE): Free Stock Analysis Report
NextEra Energy, Inc. (NEE): Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).