Investors interested in Aerospace - Defense stocks are likely familiar with Northrop Grumman (NOC - Free Report) and Harris (LHX - Free Report) . But which of these two stocks presents investors with the better value opportunity right now? 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.
Northrop Grumman has a Zacks Rank of #2 (Buy), while Harris 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 NOC is likely seeing its earnings outlook improve to a greater extent. But this is just one factor that value investors are interested in.
Value investors are also interested in a number of tried-and-true valuation metrics that help show when a company is undervalued at its 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.
NOC currently has a forward P/E ratio of 17.44, while LHX has a forward P/E of 22.72. We also note that NOC has a PEG ratio of 1.40. 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. LHX currently has a PEG ratio of 2.84.
Another notable valuation metric for NOC is its P/B ratio of 6.26. 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, LHX has a P/B of 6.69.
These metrics, and several others, help NOC earn a Value grade of B, while LHX has been given a Value grade of D.
NOC has seen stronger estimate revision activity and sports more attractive valuation metrics than LHX, so it seems like value investors will conclude that NOC is the superior option right now.