Investors with an interest in Utility - Electric Power stocks have likely encountered both FirstEnergy (FE - Free Report) and CMS Energy (CMS - Free Report) . But which of these two stocks offers value investors a better bang for their buck right now? We'll need to take a closer look.
Everyone has their own methods for finding great value opportunities, but our model includes pairing an impressive grade in the Value category of our Style Scores system with a strong Zacks Rank. 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.
Right now, both FirstEnergy and CMS Energy are sporting a Zacks Rank of # 2 (Buy). This system places an emphasis on companies that have seen positive earnings estimate revisions, so investors should feel comfortable knowing that these stocks have improving earnings outlooks. However, value investors will care about much more than just this.
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.
FE currently has a forward P/E ratio of 14.86, while CMS has a forward P/E of 21.21. We also note that FE has a PEG ratio of 2.48. 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. CMS currently has a PEG ratio of 3.43.
Another notable valuation metric for FE is its P/B ratio of 2.84. The P/B ratio is used to compare a stock's market value with its book value, which is defined as total assets minus total liabilities. For comparison, CMS has a P/B of 2.94.
These are just a few of the metrics contributing to FE's Value grade of B and CMS's Value grade of D.
Both FE and CMS are impressive stocks with solid earnings outlooks, but based on these valuation figures, we feel that FE is the superior value option right now.