Investors interested in Utility - Gas Distribution stocks are likely familiar with MDU Resources (MDU - Free Report) and Vectren . But which of these two companies is the best option for those looking for undervalued stocks? Let's 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.
Currently, MDU Resources has a Zacks Rank of #2 (Buy), while Vectren has a Zacks Rank of #3 (Hold). The Zacks Rank favors stocks that have recently seen positive revisions to their earnings estimates, so investors should rest assured that MDU has an improving earnings outlook. But this is just one piece of the puzzle for value investors.
Value investors also tend to look at a number of traditional, tried-and-true figures to help them find stocks 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.
MDU currently has a forward P/E ratio of 16.57, while VVC has a forward P/E of 23.70. We also note that MDU has a PEG ratio of 2.76. This figure is similar to the commonly-used P/E ratio, with the PEG ratio also factoring in a company's expected earnings growth rate. VVC currently has a PEG ratio of 3.95.
Another notable valuation metric for MDU is its P/B ratio of 1.97. 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 3.21.
These metrics, and several others, help MDU earn a Value grade of B, while VVC has been given a Value grade of D.
MDU stands above VVC thanks to its solid earnings outlook, and based on these valuation figures, we also feel that MDU is the superior value option right now.