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American Electric Power Company, Inc. (AEP) - free report >>
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American Electric Power Company, Inc. (AEP) - free report >>
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AEP vs. MGEE: Which Stock Is the Better Value Option?
Investors interested in Utility - Electric Power stocks are likely familiar with American Electric Power (AEP - Free Report) and MGE (MGEE - Free Report) . 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 puts an emphasis on earnings estimates and estimate revisions, while our Style Scores work to identify stocks with specific traits.
American Electric Power and MGE are sporting Zacks Ranks of #2 (Buy) and #4 (Sell), respectively, right now. This means that AEP'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 are also interested in a number of tried-and-true valuation metrics that help show when 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.
AEP currently has a forward P/E ratio of 17.75, while MGEE has a forward P/E of 22.54. We also note that AEP has a PEG ratio of 2.87. This metric is used similarly to the famous P/E ratio, but the PEG ratio also takes into account the stock's expected earnings growth rate. MGEE currently has a PEG ratio of 5.34.
Another notable valuation metric for AEP is its P/B ratio of 1.87. 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, MGEE has a P/B of 2.34.
Based on these metrics and many more, AEP holds a Value grade of B, while MGEE has a Value grade of D.
AEP has seen stronger estimate revision activity and sports more attractive valuation metrics than MGEE, so it seems like value investors will conclude that AEP is the superior option right now.