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Investors interested in stocks from the Utility - Gas Distribution sector have probably already heard of Southwest Gas (SWX) and Atmos Energy (ATO). 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 proven Zacks Rank puts an emphasis on earnings estimates and estimate revisions, while our Style Scores work to identify stocks with specific traits.
Both Southwest Gas and Atmos Energy have a Zacks Rank of # 2 (Buy) right now. The Zacks Rank favors stocks that have recently seen positive revisions to their earnings estimates, so investors should rest assured that both of these companies have improving earnings outlooks. 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.
SWX currently has a forward P/E ratio of 19.66, while ATO has a forward P/E of 21.92. We also note that SWX has a PEG ratio of 2.07. 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. ATO currently has a PEG ratio of 3.05.
Another notable valuation metric for SWX is its P/B ratio of 1.43. 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, ATO has a P/B of 1.92.
Based on these metrics and many more, SWX holds a Value grade of B, while ATO has a Value grade of D.
Both SWX and ATO are impressive stocks with solid earnings outlooks, but based on these valuation figures, we feel that SWX is the superior value option right now.
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Southwest Gas Corporation (SWX) : Free Stock Analysis Report
Atmos Energy Corporation (ATO) : Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).