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 presents investors with the better value opportunity right now? Let's 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 proven Zacks Rank puts an emphasis on earnings estimates and estimate revisions, while our Style Scores work to identify stocks with 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 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.

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 21.23, while ETN has a forward P/E of 30.96. We also note that POWL has a PEG ratio of 1.52. 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. ETN currently has a PEG ratio of 2.67.

Another notable valuation metric for POWL is its P/B ratio of 6.43. The P/B ratio is used to compare a stock's market value with its book value, which is defined as total assets minus total liabilities. For comparison, ETN has a P/B of 7.82.

These metrics, and several others, help POWL earn a Value grade of B, while ETN has been given a Value grade of D.

POWL has seen stronger estimate revision activity and sports more attractive valuation metrics than ETN, so it seems like value investors will conclude that POWL is the superior option right now.

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

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