Investors interested in stocks from the Utility - Gas Distribution sector have probably already heard of UGI (UGI) and Atmos Energy (ATO). But which of these two stocks presents investors with the better value opportunity right now? 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 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, UGI has a Zacks Rank of #2 (Buy), while Atmos Energy 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 UGI is likely seeing its earnings outlook improve to a greater extent. However, value investors will care about much more than just this.
Value investors are also interested in a number of tried-and-true valuation metrics that help show when a company is undervalued at its 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.
UGI currently has a forward P/E ratio of 11.56, while ATO has a forward P/E of 21.61. We also note that UGI has a PEG ratio of 1.72. 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. ATO currently has a PEG ratio of 2.95.
Another notable valuation metric for UGI is its P/B ratio of 1.55. The P/B ratio pits a stock's market value against its book value, which is defined as total assets minus total liabilities. For comparison, ATO has a P/B of 1.9.
These metrics, and several others, help UGI earn a Value grade of A, while ATO has been given a Value grade of D.
UGI stands above ATO thanks to its solid earnings outlook, and based on these valuation figures, we also feel that UGI is the superior value option right now.
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UGI Corporation (UGI): Free Stock Analysis Report Atmos Energy Corporation (ATO): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).
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