Investors looking for stocks in the Oil and Gas - Refining and Marketing - Master Limited Partnerships sector might want to consider either Western Midstream (WES) or Suburban Propane Partners, L.P. (SPH). 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.
Right now, Western Midstream is sporting a Zacks Rank of #2 (Buy), while Suburban Propane Partners, L.P. has a Zacks Rank of #5 (Strong Sell). This means that WES'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 also try to analyze a wide range of traditional figures and metrics to help determine whether 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.
WES currently has a forward P/E ratio of 8.11, while SPH has a forward P/E of 19.40. We also note that WES has a PEG ratio of 1.35. 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. SPH currently has a PEG ratio of 4.85.
Another notable valuation metric for WES is its P/B ratio of 2.21. 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, SPH has a P/B of 3.12.
Based on these metrics and many more, WES holds a Value grade of B, while SPH has a Value grade of F.
WES 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 WES is likely the superior value option right now.
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Zacks Investment Research