Investors looking for stocks in the Utility - Water Supply sector might want to consider either California Water Service Group (CWT) or American Water Works (AWK). But which of these two stocks presents investors with the better value opportunity right now? 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 favors stocks with strong earnings estimate revision trends, and our Style Scores highlight companies with specific traits.
California Water Service Group and American Water Works are sporting Zacks Ranks of #2 (Buy) and #3 (Hold), respectively, right now. The Zacks Rank favors stocks that have recently seen positive revisions to their earnings estimates, so investors should rest assured that CWT has an improving earnings 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 16.52, while AWK has a forward P/E of 21.07. We also note that CWT has a PEG ratio of 1.56. 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 2.83.
Another notable valuation metric for CWT is its P/B ratio of 1.5. 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 2.27.
Based on these metrics and many more, CWT holds a Value grade of B, while AWK has a Value grade of C.
CWT stands above AWK thanks to its solid earnings outlook, and based on these valuation figures, we also feel that CWT is 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).