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DGX vs. EHC: Which Stock Is the Better Value Option?

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Investors interested in Medical - Outpatient and Home Healthcare stocks are likely familiar with Quest Diagnostics (DGX - Free Report) and Encompass Health (EHC - Free Report) . 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.

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 emphasizes companies with positive estimate revision trends, and our Style Scores highlight stocks with specific traits.

Currently, Quest Diagnostics has a Zacks Rank of #2 (Buy), while Encompass Health has a Zacks Rank of #4 (Sell). This system places an emphasis on companies that have seen positive earnings estimate revisions, so investors should feel comfortable knowing that DGX is likely seeing its earnings outlook improve to a greater extent. However, value investors will care about much more than just this.

Value investors also try to analyze a wide range of traditional figures and metrics to help determine whether 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.

DGX currently has a forward P/E ratio of 11.28, while EHC has a forward P/E of 28.93. We also note that DGX has a PEG ratio of 0.43. 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. EHC currently has a PEG ratio of 12.36.

Another notable valuation metric for DGX is its P/B ratio of 2.53. 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, EHC has a P/B of 4.31.

These are just a few of the metrics contributing to DGX's Value grade of A and EHC's Value grade of C.

DGX is currently sporting an improving earnings outlook, which makes it stick out in our Zacks Rank model. And, based on the above valuation metrics, we feel that DGX is likely the superior value option right now.


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Quest Diagnostics Incorporated (DGX) - free report >>

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