Investors interested in Utility - Electric Power stocks are likely familiar with Edison International (EIX) and Iberdrola S.A. (IBDRY). 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 proven Zacks Rank puts an emphasis on earnings estimates and estimate revisions, while our Style Scores work to identify stocks with specific traits.

Right now, both Edison International and Iberdrola S.A. are sporting a Zacks Rank of # 2 (Buy). Investors should feel comfortable knowing that both of these stocks have an improving earnings outlook since the Zacks Rank favors companies that have witnessed positive analyst estimate revisions. But this is just one piece of the puzzle 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.

EIX currently has a forward P/E ratio of 9.15, while IBDRY has a forward P/E of 16.46. We also note that EIX has a PEG ratio of 1.08. 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. IBDRY currently has a PEG ratio of 1.97.

Another notable valuation metric for EIX is its P/B ratio of 1.29. 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, IBDRY has a P/B of 1.51.

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

Both EIX and IBDRY are impressive stocks with solid earnings outlooks, but based on these valuation figures, we feel that EIX 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

Edison International (EIX):Free Stock Analysis Report

Iberdrola S.A. (IBDRY):Free Stock Analysis Report

This article originally published on Zacks Investment Research (zacks.com).

Zacks Investment Research

View Comments