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 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.
Textron and Northrop Grumman are both sporting a Zacks Rank of # 2 (Buy) right now. 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 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 14.02, while NOC has a forward P/E of 16.40. We also note that TXT has a PEG ratio of 1.12. 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 1.28.
Another notable valuation metric for TXT is its P/B ratio of 2.31. 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 6.18.
These are just a few of the metrics contributing to TXT's Value grade of B and NOC's 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.