Investors with an interest in Utility - Electric Power stocks have likely encountered both Entergy (NYSE:ETR) and American Electric Power (NYSE:AEP). But which of these two stocks presents investors with the better value opportunity right now? Let's take a closer look.
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 proven Zacks Rank puts an emphasis on earnings estimates and estimate revisions, while our Style Scores work to identify stocks with specific traits.
Currently, Entergy has a Zacks Rank of #2 (Buy), while American Electric Power 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 ETR 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.
Our Value category highlights undervalued companies by looking at a variety of key metrics, including the popular P/E ratio, as well as the P/S ratio, earnings yield, cash flow per share, and a variety of other fundamentals that have been used by value investors for years.
ETR currently has a forward P/E ratio of 15.07, while AEP has a forward P/E of 17.95. We also note that ETR has a PEG ratio of 2.15. This popular metric is similar to the widely-known P/E ratio, with the difference being that the PEG ratio also takes into account the company's expected earnings growth rate. AEP currently has a PEG ratio of 3.14.
Another notable valuation metric for ETR is its P/B ratio of 1.82. 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, AEP has a P/B of 1.91.
These metrics, and several others, help ETR earn a Value grade of B, while AEP has been given a Value grade of C.
ETR stands above AEP thanks to its solid earnings outlook, and based on these valuation figures, we also feel that ETR is the superior value option right now.
Original post
Zacks Investment Research