UGP vs. KMI: Which Stock Is the Better Value Option?

Investors with an interest in Oil and Gas - Production and Pipelines stocks have likely encountered both Ultrapar Participacoes S.A. (UGP) and Kinder Morgan (KMI). But which of these two stocks is more attractive to value investors? We'll need to take a closer look to find out.

We have found that the best way to discover great value opportunities is to pair a strong Zacks Rank with a great 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.

Ultrapar Participacoes S.A. has a Zacks Rank of #2 (Buy), while Kinder Morgan has a Zacks Rank of #3 (Hold) right now. The Zacks Rank favors stocks that have recently seen positive revisions to their earnings estimates, so investors should rest assured that UGP has an improving earnings outlook. But this is just one factor that value investors are interested in.

Value investors analyze a variety of traditional, tried-and-true metrics to help find companies that they believe are undervalued at their 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.

UGP currently has a forward P/E ratio of 13.06, while KMI has a forward P/E of 23.74. We also note that UGP has a PEG ratio of 1.69. 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. KMI currently has a PEG ratio of 2.65.

Another notable valuation metric for UGP is its P/B ratio of 1.68. 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, KMI has a P/B of 2.21.

These are just a few of the metrics contributing to UGP's Value grade of A and KMI's Value grade of D.

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

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

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