Investors with an interest in Utility - Electric Power stocks have likely encountered both FirstEnergy (FE) and American Electric Power (AEP). But which of these two companies is the best option for those looking for undervalued stocks? 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 Zacks Rank favors stocks with strong earnings estimate revision trends, and our Style Scores highlight companies with specific traits.
Currently, FirstEnergy has a Zacks Rank of #2 (Buy), while American Electric Power has a Zacks Rank of #3 (Hold). This means that FE's earnings estimate revision activity has been more impressive, so investors should feel comfortable with its improving analyst outlook. However, value investors will care about much more than just this.
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 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.
FE currently has a forward P/E ratio of 18.64, while AEP has a forward P/E of 20.65. We also note that FE has a PEG ratio of 2.89. 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. AEP currently has a PEG ratio of 3.19.
Another notable valuation metric for FE is its P/B ratio of 1.93. 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, AEP has a P/B of 2.08.
These metrics, and several others, help FE earn a Value grade of B, while AEP has been given a Value grade of C.
FE is currently sporting an improving earnings outlook, which makes it stick out in our Zacks Rank model. And, based on the above valuation metrics, we feel that FE is likely the superior value option right now.
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FirstEnergy Corporation (FE): Free Stock Analysis Report American Electric Power Company, Inc. (AEP): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).
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