Investors interested in Utility - Gas Distribution stocks are likely familiar with MDU Resources (MDU) and Chesapeake Utilities (CPK). But which of these two companies is the best option for those looking for undervalued stocks? Let's 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.
Both MDU Resources and Chesapeake Utilities have a Zacks Rank of # 2 (Buy) right now. 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 just one piece of the puzzle for value investors.
Value investors are also interested in a number of tried-and-true valuation metrics that help show when 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.
MDU currently has a forward P/E ratio of 16.66, while CPK has a forward P/E of 22.78. We also note that MDU has a PEG ratio of 2.78. 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. CPK currently has a PEG ratio of 3.25.
Another notable valuation metric for MDU is its P/B ratio of 2.05. 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, CPK has a P/B of 2.67.
These metrics, and several others, help MDU earn a Value grade of B, while CPK has been given a Value grade of C.
Both MDU and CPK are impressive stocks with solid earnings outlooks, but based on these valuation figures, we feel that MDU 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
MDU Resources Group, Inc. (MDU) : Free Stock Analysis Report
Chesapeake Utilities Corporation (CPK) : Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment Research