POWL vs. ETN: Which Stock Is the Better Value Option?

Investors interested in Manufacturing - Electronics stocks are likely familiar with Powell Industries (POWL) and Eaton (ETN). 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 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, Powell Industries has a Zacks Rank of #2 (Buy), while Eaton has a Zacks Rank of #3 (Hold). The Zacks Rank favors stocks that have recently seen positive revisions to their earnings estimates, so investors should rest assured that POWL has an improving earnings outlook. But this is only part of the picture for value investors.

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.

POWL currently has a forward P/E ratio of 20.32, while ETN has a forward P/E of 29.81. We also note that POWL has a PEG ratio of 1.45. 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. ETN currently has a PEG ratio of 2.57.

Another notable valuation metric for POWL is its P/B ratio of 5.93. 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, ETN has a P/B of 7.52.

These are just a few of the metrics contributing to POWL's Value grade of B and ETN's Value grade of C.

POWL sticks out from ETN in both our Zacks Rank and Style Scores models, so value investors will likely feel that POWL is the better option right now.

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This article originally published on Zacks Investment Research (zacks.com).

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