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ADS vs. FISV: Which Stock Should Value Investors Buy Now?

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Investors interested in stocks from the Financial Transaction Services sector have probably already heard of Alliance Data Systems and Fiserv . But which of these two stocks offers value investors a better bang for their buck right now? We'll need to 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 proven Zacks Rank emphasizes companies with positive estimate revision trends, and our Style Scores highlight stocks with specific traits.

Currently, Alliance Data Systems has a Zacks Rank of #2 (Buy), while Fiserv has a Zacks Rank of #3 (Hold). This system places an emphasis on companies that have seen positive earnings estimate revisions, so investors should feel comfortable knowing that ADS is likely seeing its earnings outlook improve to a greater extent. But this is only part of the picture for value investors.

Value investors are also interested in a number of tried-and-true valuation metrics that help show when a company is undervalued at its current share price levels.

The Value category of the Style Scores system identifies undervalued companies by looking at a number of key metrics. These include the long-favored P/E ratio, P/S ratio, earnings yield, cash flow per share, and a variety of other fundamentals that help us determine a company's fair value.

ADS currently has a forward P/E ratio of 10.21, while FISV has a forward P/E of 24.73. We also note that ADS has a PEG ratio of 0.79. 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. FISV currently has a PEG ratio of 2.15.

Another notable valuation metric for ADS is its P/B ratio of 6.08. 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, FISV has a P/B of 10.64.

Based on these metrics and many more, ADS holds a Value grade of A, while FISV has a Value grade of D.

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