PNM vs. XEL: Which Stock Should Value Investors Buy Now?

Investors looking for stocks in the Utility - Electric Power sector might want to consider either PNM Resources (PNM) or Xcel Energy (XEL). But which of these two stocks offers value investors a better bang for their buck right now? We'll need to take a closer look.

The best way to find great value stocks is to pair a strong Zacks Rank with an impressive grade in the Value category of our Style Scores system. The Zacks Rank favors stocks with strong earnings estimate revision trends, and our Style Scores highlight companies with specific traits.

Currently, both PNM Resources and Xcel Energy are holding a Zacks Rank of # 2 (Buy). This means that both companies have witnessed positive earnings estimate revisions, so investors should feel comfortable knowing that both of these stocks have an improving earnings outlook. But this is only part of the picture for value investors.

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.

PNM currently has a forward P/E ratio of 20.33, while XEL has a forward P/E of 26.17. We also note that PNM has a PEG ratio of 4.17. 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. XEL currently has a PEG ratio of 4.41.

Another notable valuation metric for PNM is its P/B ratio of 2.04. 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, XEL has a P/B of 2.84.

These metrics, and several others, help PNM earn a Value grade of B, while XEL has been given a Value grade of C.

Both PNM and XEL are impressive stocks with solid earnings outlooks, but based on these valuation figures, we feel that PNM is the superior value option right now.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
PNM Resources, Inc. Holding Co. (PNM) : Free Stock Analysis Report
 
Xcel Energy Inc. (XEL) : Free Stock Analysis Report
 
To read this article on Zacks.com click here.
 
Zacks Investment Research