Investors interested in stocks from the Large Cap Pharmaceuticals sector have probably already heard of Pfizer (PFE - Free Report) and GlaxoSmithKline (GSK - Free Report) . 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 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.
Currently, Pfizer has a Zacks Rank of #2 (Buy), while GlaxoSmithKline has a Zacks Rank of #5 (Strong Sell). Investors should feel comfortable knowing that PFE likely has seen a stronger improvement to its earnings outlook than GSK has recently. But this is just one factor that value investors are interested in.
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 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.
PFE currently has a forward P/E ratio of 12.28, while GSK has a forward P/E of 14.56. We also note that PFE has a PEG ratio of 1.80. 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. GSK currently has a PEG ratio of 2.33.
Another notable valuation metric for PFE is its P/B ratio of 3.07. 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, GSK has a P/B of 20.17.
Based on these metrics and many more, PFE holds a Value grade of B, while GSK has a Value grade of C.
PFE 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 PFE is likely the superior value option right now.