Investors interested in stocks from the Communication - Infrastructure sector have probably already heard of Adtran (ADTN - Free Report) and Zayo Group (ZAYO - 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.
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 proven Zacks Rank emphasizes companies with positive estimate revision trends, and our Style Scores highlight stocks with specific traits.
Adtran has a Zacks Rank of #2 (Buy), while Zayo Group 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 ADTN is likely seeing its earnings outlook improve to a greater extent. But this is only part of the picture for value investors.
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.
ADTN currently has a forward P/E ratio of 38.62, while ZAYO has a forward P/E of 51.40. We also note that ADTN has a PEG ratio of 7.72. 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. ZAYO currently has a PEG ratio of 10.28.
Another notable valuation metric for ADTN is its P/B ratio of 1.18. 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, ZAYO has a P/B of 6.36.
These are just a few of the metrics contributing to ADTN's Value grade of B and ZAYO's Value grade of C.
ADTN is currently sporting an improving earnings outlook, which makes it stick out in our Zacks Rank model. And, based on the above valuation metrics, we feel that ADTN is likely the superior value option right now.