Investors with an interest in Financial - Investment Management stocks have likely encountered both Legg Mason and Eaton Vance (EV). But which of these two companies is the best option for those looking for undervalued stocks? 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.
Legg Mason has a Zacks Rank of #2 (Buy), while Eaton Vance 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 LM is likely seeing its earnings outlook improve to a greater extent. But this is just one piece of the puzzle for value investors.
Value investors analyze a variety of traditional, tried-and-true metrics to help find companies that they believe are undervalued at their current share price levels.
Our Value category grades stocks based on a number of key metrics, including the tried-and-true P/E ratio, the P/S ratio, earnings yield, and cash flow per share, as well as a variety of other fundamentals that value investors frequently use.
LM currently has a forward P/E ratio of 10.76, while EV has a forward P/E of 13.19. We also note that LM has a PEG ratio of 0.94. This metric is used similarly to the famous P/E ratio, but the PEG ratio also takes into account the stock's expected earnings growth rate. EV currently has a PEG ratio of 2.61.
Another notable valuation metric for LM is its P/B ratio of 0.90. The P/B is a method of comparing a stock's market value to its book value, which is defined as total assets minus total liabilities. By comparison, EV has a P/B of 4.48.
These metrics, and several others, help LM earn a Value grade of A, while EV has been given a Value grade of C.
LM stands above EV thanks to its solid earnings outlook, and based on these valuation figures, we also feel that LM is the superior value option right now.