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SWX vs. OGS: Which Stock Is the Better Value Option?

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Investors interested in Utility - Gas Distribution stocks are likely familiar with Southwest Gas (SWX - Free Report) and ONE Gas (OGS - Free Report) . But which of these two companies is the best option for those looking for undervalued stocks? Let's take a closer look.

We have found that the best way to discover great value opportunities is to pair a strong Zacks Rank with a great grade in the Value category of our Style Scores system. 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.

Currently, Southwest Gas has a Zacks Rank of #2 (Buy), while ONE Gas has a Zacks Rank of #3 (Hold). Investors should feel comfortable knowing that SWX likely has seen a stronger improvement to its earnings outlook than OGS has recently. But this is just one piece of the puzzle for value investors.

Value investors also tend to look at a number of traditional, tried-and-true figures to help them find stocks that they believe are undervalued at their 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.

SWX currently has a forward P/E ratio of 16.92, while OGS has a forward P/E of 17.44. We also note that SWX has a PEG ratio of 3.08. 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. OGS currently has a PEG ratio of 3.49.

Another notable valuation metric for SWX is its P/B ratio of 1.44. 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, OGS has a P/B of 1.53.

These metrics, and several others, help SWX earn a Value grade of B, while OGS has been given a Value grade of D.

SWX stands above OGS thanks to its solid earnings outlook, and based on these valuation figures, we also feel that SWX is the superior value option right now.


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