Investors looking for stocks in the Aerospace - Defense sector might want to consider either Northrop Grumman (NOC - Free Report) or 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.
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 proven Zacks Rank emphasizes companies with positive estimate revision trends, and our Style Scores highlight stocks with specific traits.
Northrop Grumman has a Zacks Rank of #2 (Buy), while Harris has a Zacks Rank of #3 (Hold) right now. Investors should feel comfortable knowing that NOC likely has seen a stronger improvement to its earnings outlook than LHX has recently. 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.
NOC currently has a forward P/E ratio of 18.72, while LHX has a forward P/E of 21.58. We also note that NOC has a PEG ratio of 1.51. 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. LHX currently has a PEG ratio of 2.70.
Another notable valuation metric for NOC is its P/B ratio of 6.75. 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, LHX has a P/B of 7.34.
These are just a few of the metrics contributing to NOC's Value grade of B and LHX's Value grade of D.
NOC stands above LHX thanks to its solid earnings outlook, and based on these valuation figures, we also feel that NOC is the superior value option right now.