Investors looking for stocks in the Utility - Gas Distribution sector might want to consider either UGI (UGI - Free Report) or 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 proven Zacks Rank emphasizes companies with positive estimate revision trends, and our Style Scores highlight stocks with specific traits.
UGI and Vectren 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 UGI has an improving earnings outlook. But this is just one factor that value investors are interested in.
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.
The Style Score Value grade factors in a variety of key fundamental metrics, including the popular P/E ratio, P/S ratio, earnings yield, cash flow per share, and a number of other key stats that are commonly used by value investors.
UGI currently has a forward P/E ratio of 19.32, while VVC has a forward P/E of 24.86. We also note that UGI has a PEG ratio of 2.42. 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. VVC currently has a PEG ratio of 3.55.
Another notable valuation metric for UGI is its P/B ratio of 2.19. 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 3.18.
These are just a few of the metrics contributing to UGI's Value grade of B and VVC's Value grade of C.
UGI has seen stronger estimate revision activity and sports more attractive valuation metrics than VVC, so it seems like value investors will conclude that UGI is the superior option right now.