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HEINY vs. DEO: Which Stock Should Value Investors Buy Now?

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Investors with an interest in Beverages - Alcohol stocks have likely encountered both Heineken NV (HEINY - Free Report) and Diageo (DEO - Free Report) . But which of these two stocks presents investors with the better value opportunity right now? Let's take a closer look.

There are plenty of strategies for discovering value stocks, but we have found that pairing a strong Zacks Rank with an impressive grade in the Value category of our Style Scores system produces the best returns. 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, Heineken NV is sporting a Zacks Rank of #2 (Buy), while Diageo has a Zacks Rank of #3 (Hold). This system places an emphasis on companies that have seen positive earnings estimate revisions, so investors should feel comfortable knowing that HEINY is likely seeing its earnings outlook improve to a greater extent. But this is only part of the picture 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.

HEINY currently has a forward P/E ratio of 25.22, while DEO has a forward P/E of 26.53. We also note that HEINY has a PEG ratio of 1. 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. DEO currently has a PEG ratio of 3.16.

Another notable valuation metric for HEINY is its P/B ratio of 3.27. 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, DEO has a P/B of 10.79.

These metrics, and several others, help HEINY earn a Value grade of B, while DEO has been given a Value grade of C.

HEINY has seen stronger estimate revision activity and sports more attractive valuation metrics than DEO, so it seems like value investors will conclude that HEINY is the superior option right now.


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