Investors interested in stocks from the Utility - Electric Power sector have probably already heard of NorthWestern (NWE) and Pinnacle West (PNW). 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.
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 proven Zacks Rank emphasizes companies with positive estimate revision trends, and our Style Scores highlight stocks with specific traits.
NorthWestern and Pinnacle West are sporting Zacks Ranks of #2 (Buy) and #4 (Sell), respectively, right now. This means that NWE's earnings estimate revision activity has been more impressive, so investors should feel comfortable with its improving analyst outlook. But this is just one factor that value investors are interested in.
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.
Our Value category highlights undervalued companies by looking at a variety of key metrics, including the popular P/E ratio, as well as the P/S ratio, earnings yield, cash flow per share, and a variety of other fundamentals that have been used by value investors for years.
NWE currently has a forward P/E ratio of 15.70, while PNW has a forward P/E of 19.31. We also note that NWE has a PEG ratio of 2.29. 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. PNW currently has a PEG ratio of 9.11.
Another notable valuation metric for NWE is its P/B ratio of 1.21. 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, PNW has a P/B of 1.53.
These metrics, and several others, help NWE earn a Value grade of B, while PNW has been given a Value grade of C.
NWE stands above PNW thanks to its solid earnings outlook, and based on these valuation figures, we also feel that NWE 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
NorthWestern Corporation (NWE): Free Stock Analysis Report Pinnacle West Capital Corporation (PNW): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).
Zacks Investment Research
