Investors interested in stocks from the Aerospace - Defense sector have probably already heard of Leidos (LDOS - Free Report) and Lockheed Martin (LMT - 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.
Right now, both Leidos and Lockheed Martin are sporting a Zacks Rank of # 2 (Buy). Investors should feel comfortable knowing that both of these stocks have an improving earnings outlook since the Zacks Rank favors companies that have witnessed positive analyst estimate revisions. But this is only part of the picture 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.
LDOS currently has a forward P/E ratio of 16.32, while LMT has a forward P/E of 16.53. We also note that LDOS has a PEG ratio of 2.18. This figure is similar to the commonly-used P/E ratio, with the PEG ratio also factoring in a company's expected earnings growth rate. LMT currently has a PEG ratio of 2.35.
Another notable valuation metric for LDOS is its P/B ratio of 3.27. 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, LMT has a P/B of 38.02.
These metrics, and several others, help LDOS earn a Value grade of B, while LMT has been given a Value grade of C.
Both LDOS and LMT are impressive stocks with solid earnings outlooks, but based on these valuation figures, we feel that LDOS is the superior value option right now.