Investors interested in stocks from the Utility - Electric Power sector have probably already heard of AES (AES - Free Report) and OGE Energy (OGE - 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 proven Zacks Rank puts an emphasis on earnings estimates and estimate revisions, while our Style Scores work to identify stocks with specific traits.
Both AES and OGE Energy have a Zacks Rank of # 2 (Buy) right now. This means that both companies have witnessed positive earnings estimate revisions, so investors should feel comfortable knowing that both of these stocks have an improving earnings outlook. But this is just one factor that value investors are interested in.
Value investors analyze a variety of traditional, tried-and-true metrics to help find companies 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.
AES currently has a forward P/E ratio of 12.04, while OGE has a forward P/E of 17.64. We also note that AES has a PEG ratio of 1.45. 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. OGE currently has a PEG ratio of 3.41.
Another notable valuation metric for AES is its P/B ratio of 1.71. 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, OGE has a P/B of 1.84.
These are just a few of the metrics contributing to AES's Value grade of A and OGE's Value grade of C.
Both AES and OGE are impressive stocks with solid earnings outlooks, but based on these valuation figures, we feel that AES is the superior value option right now.