Investors with an interest in Transportation - Rail stocks have likely encountered both Norfolk Southern (NSC - Free Report) and Canadian Pacific (CP - Free Report) . But which of these two companies is the best option for those looking for undervalued stocks? Let's take a closer look.
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.
Norfolk Southern and Canadian Pacific are sporting Zacks Ranks of #2 (Buy) and #4 (Sell), respectively, right now. This system places an emphasis on companies that have seen positive earnings estimate revisions, so investors should feel comfortable knowing that NSC is likely seeing its earnings outlook improve to a greater extent. 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.
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.
NSC currently has a forward P/E ratio of 18.19, while CP has a forward P/E of 18.27. We also note that NSC has a PEG ratio of 1.52. This popular figure is similar to the widely-used P/E ratio, but the PEG ratio also considers a company's expected EPS growth rate. CP currently has a PEG ratio of 1.56.
Another notable valuation metric for NSC is its P/B ratio of 2.71. Investors use the P/B ratio to look at a stock's market value versus its book value, which is defined as total assets minus total liabilities. By comparison, CP has a P/B of 5.23.
These are just a few of the metrics contributing to NSC's Value grade of B and CP's Value grade of C.
NSC has seen stronger estimate revision activity and sports more attractive valuation metrics than CP, so it seems like value investors will conclude that NSC is the superior option right now.