Investors interested in stocks from the Large Cap Pharmaceuticals sector have probably already heard of Pfizer (PFE - Free Report) and Merck (MRK - Free Report) . But which of these two stocks presents investors with the better value opportunity right now? Let's take a closer look.
Everyone has their own methods for finding great value opportunities, but our model includes pairing an impressive grade in the Value category of our Style Scores system with a strong Zacks Rank. The proven Zacks Rank emphasizes companies with positive estimate revision trends, and our Style Scores highlight stocks with specific traits.
Pfizer has a Zacks Rank of #2 (Buy), while Merck has a Zacks Rank of #3 (Hold) right now. This system places an emphasis on companies that have seen positive earnings estimate revisions, so investors should feel comfortable knowing that PFE is likely seeing its earnings outlook improve to a greater extent. But this is only part of the picture 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.
Our Value category highlights undervalued companies by looking at a variety of key metrics, including the popular P/E ratio, as well as the P/S ratio, earnings yield, cash flow per share, and a variety of other fundamentals that have been used by value investors for years.
PFE currently has a forward P/E ratio of 13.28, while MRK has a forward P/E of 15.31. We also note that PFE has a PEG ratio of 1.92. 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. MRK currently has a PEG ratio of 2.25.
Another notable valuation metric for PFE is its P/B ratio of 3.35. The P/B is a method of comparing a stock's market value to its book value, which is defined as total assets minus total liabilities. By comparison, MRK has a P/B of 5.19.
These metrics, and several others, help PFE earn a Value grade of B, while MRK has been given 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.