Investors with an interest in Utility - Gas Distribution stocks have likely encountered both UGI (UGI - Free Report) and Vectren (VVC - Free Report) . But which of these two companies is the best option for those looking for undervalued stocks? Let's take a closer look.
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 Zacks Rank favors stocks with strong earnings estimate revision trends, and our Style Scores highlight companies with specific traits.
UGI and Vectren are sporting Zacks Ranks of #2 (Buy) and #4 (Sell) respectively, right now. This means that UGI'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 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.
UGI currently has a forward P/E ratio of 18.20, while VVC has a forward P/E of 24.63. We also note that UGI has a PEG ratio of 2.28. 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. VVC currently has a PEG ratio of 3.52.
Another notable valuation metric for UGI is its P/B ratio of 1.93. 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, VVC has a P/B of 3.12.
These metrics, and several others, help UGI earn a Value grade of A, while VVC has been given a Value grade of C.
UGI is currently sporting an improving earnings outlook, which makes it stick out in our Zacks Rank model. And, based on the above valuation metrics, we feel that UGI is likely the superior value option right now.