Investors interested in Insurance - Multi line stocks are likely familiar with Prudential (PRU - Free Report) and Radian (RDN - Free Report) . But which of these two companies is the best option for those looking for undervalued stocks? Let's 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 Zacks Rank is a proven strategy that targets companies with positive earnings estimate revision trends, while our Style Scores work to grade companies based on specific traits.
Prudential has a Zacks Rank of #2 (Buy), while Radian has a Zacks Rank of #4 (Sell) right now. The Zacks Rank favors stocks that have recently seen positive revisions to their earnings estimates, so investors should rest assured that PRU has an improving earnings outlook. 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.
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.
PRU currently has a forward P/E ratio of 8.24, while RDN has a forward P/E of 8.53. We also note that PRU has a PEG ratio of 0.92. This popular metric is similar to the widely-known P/E ratio, with the difference being that the PEG ratio also takes into account the company's expected earnings growth rate. RDN currently has a PEG ratio of 1.71.
Another notable valuation metric for PRU is its P/B ratio of 0.89. 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, RDN has a P/B of 1.43.
These metrics, and several others, help PRU earn a Value grade of A, while RDN has been given a Value grade of C.
PRU has seen stronger estimate revision activity and sports more attractive valuation metrics than RDN, so it seems like value investors will conclude that PRU is the superior option right now.