Investors interested in Aerospace - Defense stocks are likely familiar with Textron (TXT - Free Report) and Northrop Grumman (NOC - Free Report) . But which of these two stocks is more attractive to value investors? We'll need to take a closer look to find out.
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 Zacks Rank favors stocks with strong earnings estimate revision trends, and our Style Scores highlight companies with specific traits.
Right now, both Textron and Northrop Grumman 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. However, value investors will care about much more than just this.
Value investors also tend to look at a number of traditional, tried-and-true figures to help them find stocks that they believe are undervalued at their 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.
TXT currently has a forward P/E ratio of 13.16, while NOC has a forward P/E of 15.49. We also note that TXT has a PEG ratio of 1.05. 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. NOC currently has a PEG ratio of 1.21.
Another notable valuation metric for TXT is its P/B ratio of 2.16. 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, NOC has a P/B of 5.84.
These metrics, and several others, help TXT earn a Value grade of B, while NOC has been given a Value grade of C.
Both TXT and NOC are impressive stocks with solid earnings outlooks, but based on these valuation figures, we feel that TXT is the superior value option right now.