Investors interested in stocks from the Large Cap Pharmaceuticals sector have probably already heard of Eli Lilly (LLY - Free Report) and Novo Nordisk (NVO - 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 puts an emphasis on earnings estimates and estimate revisions, while our Style Scores work to identify stocks with specific traits.
Currently, Eli Lilly has a Zacks Rank of #2 (Buy), while Novo Nordisk has a Zacks Rank of #4 (Sell). This system places an emphasis on companies that have seen positive earnings estimate revisions, so investors should feel comfortable knowing that LLY 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 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.
LLY currently has a forward P/E ratio of 17.46, while NVO has a forward P/E of 19.97. We also note that LLY has a PEG ratio of 1.54. 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. NVO currently has a PEG ratio of 2.64.
Another notable valuation metric for LLY is its P/B ratio of 6.70. 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, NVO has a P/B of 16.80.
These metrics, and several others, help LLY earn a Value grade of B, while NVO has been given a Value grade of C.
LLY stands above NVO thanks to its solid earnings outlook, and based on these valuation figures, we also feel that LLY is the superior value option right now.