Investors interested in stocks from the Diversified Communication Services sector have probably already heard of Telefonica (TEF - Free Report) and BCE (BCE - Free Report) . 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 puts an emphasis on earnings estimates and estimate revisions, while our Style Scores work to identify stocks with specific traits.
Telefonica and BCE are sporting Zacks Ranks of #2 (Buy) and #4 (Sell), respectively, right now. The Zacks Rank favors stocks that have recently seen positive revisions to their earnings estimates, so investors should rest assured that TEF has an improving earnings outlook. But this is just one piece of the puzzle 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 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.
TEF currently has a forward P/E ratio of 9.25, while BCE has a forward P/E of 16.31. We also note that TEF has a PEG ratio of 1.01. 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. BCE currently has a PEG ratio of 3.98.
Another notable valuation metric for TEF is its P/B ratio of 1.31. 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, BCE has a P/B of 3.21.
Based on these metrics and many more, TEF holds a Value grade of A, while BCE has a Value grade of C.
TEF 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 TEF is likely the superior value option right now.