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FSS vs. HON: Which Stock Is the Better Value Option?

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Investors interested in stocks from the Diversified Operations sector have probably already heard of Federal Signal (FSS - Free Report) and Honeywell International Inc. (HON - Free Report) . But which of these two stocks is more attractive to value investors? We'll need to take a closer look to find out.

We have found that the best way to discover great value opportunities is to pair a strong Zacks Rank with a great 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.

Federal Signal has a Zacks Rank of #2 (Buy), while Honeywell International Inc. has a Zacks Rank of #3 (Hold) right now. Investors should feel comfortable knowing that FSS likely has seen a stronger improvement to its earnings outlook than HON has recently. 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.

Our Value category grades stocks based on a number of key metrics, including the tried-and-true P/E ratio, the P/S ratio, earnings yield, and cash flow per share, as well as a variety of other fundamentals that value investors frequently use.

FSS currently has a forward P/E ratio of 20.38, while HON has a forward P/E of 28.38. We also note that FSS has a PEG ratio of 1.36. 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. HON currently has a PEG ratio of 2.65.

Another notable valuation metric for FSS is its P/B ratio of 3.12. 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, HON has a P/B of 8.72.

Based on these metrics and many more, FSS holds a Value grade of B, while HON has a Value grade of C.

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


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