Investors with an interest in Utility - Electric Power stocks have likely encountered both Energias de Portugal (EDPFY) and Exelon (EXC). But which of these two companies is the best option for those looking for undervalued stocks? Let's take a closer look.
There are plenty of strategies for discovering value stocks, but we have found that pairing a strong Zacks Rank with an impressive grade in the Value category of our Style Scores system produces the best returns. The proven Zacks Rank emphasizes companies with positive estimate revision trends, and our Style Scores highlight stocks with specific traits.
Right now, Energias de Portugal is sporting a Zacks Rank of #2 (Buy), while Exelon has a Zacks Rank of #3 (Hold). This means that EDPFY'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.
EDPFY currently has a forward P/E ratio of 14.98, while EXC has a forward P/E of 16.98. We also note that EDPFY has a PEG ratio of 1.23. This figure is similar to the commonly-used P/E ratio, with the PEG ratio also factoring in a company's expected earnings growth rate. EXC currently has a PEG ratio of 2.54.
Another notable valuation metric for EDPFY is its P/B ratio of 1.18. Investors use the P/B ratio to look at a stock's market value versus its book value, which is defined as total assets minus total liabilities. By comparison, EXC has a P/B of 1.59.
Based on these metrics and many more, EDPFY holds a Value grade of B, while EXC has a Value grade of C.
EDPFY has seen stronger estimate revision activity and sports more attractive valuation metrics than EXC, so it seems like value investors will conclude that EDPFY is the superior option right now.
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