Investors looking for stocks in the Oil and Gas – Production and Pipelines sector might want to consider either Kinder Morgan (KMI) or Williams Companies, Inc. The (WMB). But which of these two stocks presents investors with the better value opportunity right now? 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 Zacks Rank favors stocks with strong earnings estimate revision trends, and our Style Scores highlight companies with specific traits.
Kinder Morgan has a Zacks Rank of #2 (Buy), while Williams Companies, Inc. The has a Zacks Rank of #3 (Hold) right now. This system places an emphasis on companies that have seen positive earnings estimate revisions, so investors should feel comfortable knowing that KMI is likely seeing its earnings outlook improve to a greater extent. But this is only part of the picture 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.
KMI currently has a forward P/E ratio of 12.88, while WMB has a forward P/E of 23.26. We also note that KMI has a PEG ratio of 4.29. 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. WMB currently has a PEG ratio of 6.65.
Another notable valuation metric for KMI is its P/B ratio of 1.23. 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, WMB has a P/B of 2.36.
Based on these metrics and many more, KMI holds a Value grade of B, while WMB has a Value grade of C.
KMI has seen stronger estimate revision activity and sports more attractive valuation metrics than WMB, so it seems like value investors will conclude that KMI is the superior option right now.
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