Investors interested in stocks from the Banks - Midwest sector have probably already heard of Old National Bancorp (ONB - Free Report) and Mercantile Bank (MBWM - Free Report) . But which of these two stocks presents investors with the better value opportunity right now? 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 emphasizes companies with positive estimate revision trends, and our Style Scores highlight stocks with specific traits.
Right now, Old National Bancorp is sporting a Zacks Rank of #2 (Buy), while Mercantile Bank has a Zacks Rank of #3 (Hold). This means that ONB's earnings estimate revision activity has been more impressive, so investors should feel comfortable with its improving analyst outlook. However, value investors will care about much more than just this.
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.
ONB currently has a forward P/E ratio of 14.69, while MBWM has a forward P/E of 15.18. We also note that ONB has a PEG ratio of 1.84. 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. MBWM currently has a PEG ratio of 1.90.
Another notable valuation metric for ONB is its P/B ratio of 1.31. 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, MBWM has a P/B of 1.68.
These are just a few of the metrics contributing to ONB's Value grade of B and MBWM's Value grade of C.
ONB 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 ONB is likely the superior value option right now.