Investors with an interest in Utility - Gas Distribution stocks have likely encountered both MDU Resources (MDU) and ONE Gas (OGS). But which of these two companies is the best option for those looking for undervalued stocks? Let's take a closer look.
There are plenty of strategies for discovering value stocks, but we have found that pairing a strong Zacks Rank with an impressive grade in the Value category of our Style Scores system produces the best returns. The Zacks Rank favors stocks with strong earnings estimate revision trends, and our Style Scores highlight companies with specific traits.
Right now, both MDU Resources and ONE Gas are sporting a Zacks Rank of #2 (Buy). This means that both companies have witnessed positive earnings estimate revisions, so investors should feel comfortable knowing that both of these stocks have an improving earnings 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.
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 17.18, while OGS has a forward P/E of 17.45. We also note that MDU has a PEG ratio of 2.48. This metric is used similarly to the famous P/E ratio, but the PEG ratio also takes into account the stock's expected earnings growth rate. OGS currently has a PEG ratio of 3.14.
Another notable valuation metric for MDU is its P/B ratio of 1.22. 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, OGS has a P/B of 1.42.
These metrics, and several others, help MDU earn a Value grade of B, while OGS has been given a Value grade of C.
Both MDU and OGS are impressive stocks with solid earnings outlooks, but based on these valuation figures, we feel that MDU is the superior value option right now.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
MDU Resources Group, Inc. (MDU): Free Stock Analysis Report ONE Gas, Inc. (OGS): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).
Zacks Investment Research
