Investors with an interest in Utility - Gas Distribution stocks have likely encountered both Southwest Gas (SWX) 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.
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 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.
Both Southwest Gas and Atmos Energy have a Zacks Rank of # 2 (Buy) right now. Investors should feel comfortable knowing that both of these stocks have an improving earnings outlook since the Zacks Rank favors companies that have witnessed positive analyst estimate revisions. But this is just one piece of the puzzle for value investors.
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.
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 19.42, while ATO has a forward P/E of 21.59. We also note that SWX has a PEG ratio of 2.04. This popular metric is similar to the widely-known P/E ratio, with the difference being that the PEG ratio also takes into account the company's expected earnings growth rate. ATO currently has a PEG ratio of 3.
Another notable valuation metric for SWX is its P/B ratio of 1.40. 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 1.88.
These are just a few of the metrics contributing to SWX's Value grade of B and ATO's 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 ReportThis article originally published on Zacks Investment Research (zacks.com).
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