Investors interested in Utility - Gas Distribution stocks are likely familiar with Southwest Gas (SWX - Free Report) and Oneok Inc. (OKE - 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 Zacks Rank favors stocks with strong earnings estimate revision trends, and our Style Scores highlight companies with specific traits.
Southwest Gas has a Zacks Rank of #2 (Buy), while Oneok Inc. has a Zacks Rank of #4 (Sell) right now. This means that SWX's earnings estimate revision activity has been more impressive, so investors should feel comfortable with its improving analyst outlook. But this is just one piece of the puzzle for value investors.
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.
Our Value category grades stocks based on a number of key metrics, including the tried-and-true P/E ratio, the P/S ratio, earnings yield, and cash flow per share, as well as a variety of other fundamentals that value investors frequently use.
SWX currently has a forward P/E ratio of 19.02, while OKE has a forward P/E of 21.51. We also note that SWX has a PEG ratio of 3.17. 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. OKE currently has a PEG ratio of 3.59.
Another notable valuation metric for SWX is its P/B ratio of 1.54. The P/B is a method of comparing a stock's market value to its book value, which is defined as total assets minus total liabilities. By comparison, OKE has a P/B of 2.61.
These are just a few of the metrics contributing to SWX's Value grade of B and OKE's Value grade of C.
SWX stands above OKE thanks to its solid earnings outlook, and based on these valuation figures, we also feel that SWX is the superior value option right now.