Investors looking for stocks in the Utility - Electric Power sector might want to consider either Vistra Energy Corp. (VST - Free Report) or Southern Co. (SO - Free Report) . But which of these two companies is the best option for those looking for undervalued stocks? Let's take a closer look.
The best way to find great value stocks is to pair a strong Zacks Rank with an impressive 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.
Currently, Vistra Energy Corp. has a Zacks Rank of #2 (Buy), while Southern Co. has a Zacks Rank of #3 (Hold). This system places an emphasis on companies that have seen positive earnings estimate revisions, so investors should feel comfortable knowing that VST is likely seeing its earnings outlook improve to a greater extent. But this is just one factor that value investors are interested in.
Value investors also try to analyze a wide range of traditional figures and metrics to help determine whether 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.
VST currently has a forward P/E ratio of 7.91, while SO has a forward P/E of 17.42. We also note that VST has a PEG ratio of 0.66. 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. SO currently has a PEG ratio of 4.35.
Another notable valuation metric for VST is its P/B ratio of 1.24. 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, SO has a P/B of 1.82.
These metrics, and several others, help VST earn a Value grade of A, while SO has been given a Value grade of C.
VST sticks out from SO in both our Zacks Rank and Style Scores models, so value investors will likely feel that VST is the better option right now.