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TXT vs. RTX: Which Stock Is the Better Value Option?

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Investors interested in stocks from the Aerospace - Defense sector have probably already heard of Textron (TXT - Free Report) and RTX (RTX - 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 Zacks Rank is a proven strategy that targets companies with positive earnings estimate revision trends, while our Style Scores work to grade companies based on specific traits.

Textron and RTX are sporting Zacks Ranks of #2 (Buy) and #3 (Hold), respectively, right now. The Zacks Rank favors stocks that have recently seen positive revisions to their earnings estimates, so investors should rest assured that TXT has an improving earnings outlook. 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 Style Score Value grade factors in a variety of key fundamental metrics, including the popular P/E ratio, P/S ratio, earnings yield, cash flow per share, and a number of other key stats that are commonly used by value investors.

TXT currently has a forward P/E ratio of 14.42, while RTX has a forward P/E of 29.80. We also note that TXT has a PEG ratio of 1.44. 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. RTX currently has a PEG ratio of 2.92.

Another notable valuation metric for TXT is its P/B ratio of 2.09. The P/B ratio is used to compare a stock's market value with its book value, which is defined as total assets minus total liabilities. For comparison, RTX has a P/B of 3.73.

These metrics, and several others, help TXT earn a Value grade of B, while RTX has been given a Value grade of D.

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


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