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MARKETS LIVE BLOG:

STOCKS SLIDE AFTER META'S REALITY CHECK, DOWNBEAT GDP

Caterpillar sinks 7% after earnings, management sees weakness in Europe, Asia-Pacific

RRC or SM: Which Is the Better Value Stock Right Now?

Zacks Equity Research
Updated
Kinder Morgan (KMI) reported earnings 30 days ago. What's next for the stock? We take a look at earnings estimates for some clues.

Investors interested in stocks from the Oil and Gas - Exploration and Production - United States sector have probably already heard of Range Resources (RRC) and SM Energy (SM). But which of these two companies is the best option for those looking for undervalued stocks? Let's take a closer look.

Everyone has their own methods for finding great value opportunities, but our model includes pairing an impressive grade in the Value category of our Style Scores system with a strong Zacks Rank. 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, Range Resources has a Zacks Rank of #1 (Strong Buy), while SM Energy has a Zacks Rank of #2 (Buy). Investors should feel comfortable knowing that RRC likely has seen a stronger improvement to its earnings outlook than SM has recently. However, value investors will care about much more than just this.

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.

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The Style Score Value grade factors in a variety of key fundamental metrics, including the popular P/E ratio, P/S ratio, earnings yield, cash flow per share, and a number of other key stats that are commonly used by value investors.

RRC currently has a forward P/E ratio of 13.95, while SM has a forward P/E of 49.72. We also note that RRC has a PEG ratio of 1.02. 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. SM currently has a PEG ratio of 4.97.

Another notable valuation metric for RRC is its P/B ratio of 0.70. The P/B ratio pits a stock's market value against its book value, which is defined as total assets minus total liabilities. For comparison, SM has a P/B of 0.95.

Based on these metrics and many more, RRC holds a Value grade of A, while SM has a Value grade of C.

RRC stands above SM thanks to its solid earnings outlook, and based on these valuation figures, we also feel that RRC is the superior value option right now.


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Range Resources Corporation (RRC) : Free Stock Analysis Report
 
SM Energy Company (SM) : Free Stock Analysis Report
 
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Zacks Investment Research