Investors interested in stocks from the Utility - Water Supply sector have probably already heard of 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.
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 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 has a Zacks Rank of #2 (Buy), while American Water Works has a Zacks Rank of #3 (Hold) 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 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.
Our Value category grades stocks based on a number of key metrics, including the tried-and-true P/E ratio, the P/S ratio, earnings yield, and cash flow per share, as well as a variety of other fundamentals that value investors frequently use.
CWT currently has a forward P/E ratio of 17.65, while AWK has a forward P/E of 21.88. We also note that CWT has a PEG ratio of 1.66. 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. AWK currently has a PEG ratio of 2.94.
Another notable valuation metric for CWT is its P/B ratio of 1.59. 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, AWK has a P/B of 2.4.
Based on these metrics and many more, CWT holds a Value grade of B, while AWK has a Value grade of C.
CWT has seen stronger estimate revision activity and sports more attractive valuation metrics than AWK, so it seems like value investors will conclude that CWT is the superior 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).