Investors interested in stocks from the Beverages - Soft drinks sector have probably already heard of Coca-Cola European (CCEP - Free Report) and PepsiCo (PEP - 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.
We have found that the best way to discover great value opportunities is to pair a strong Zacks Rank with a great grade in the Value category of our Style Scores system. 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.
Currently, Coca-Cola European has a Zacks Rank of #2 (Buy), while PepsiCo has a Zacks Rank of #4 (Sell). This means that CCEP's earnings estimate revision activity has been more impressive, so investors should feel comfortable with its improving analyst outlook. But this is just one factor that value investors are interested in.
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.
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.
CCEP currently has a forward P/E ratio of 16.63, while PEP has a forward P/E of 22.65. We also note that CCEP has a PEG ratio of 1.87. 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. PEP currently has a PEG ratio of 3.24.
Another notable valuation metric for CCEP is its P/B ratio of 3.47. 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, PEP has a P/B of 13.19.
Based on these metrics and many more, CCEP holds a Value grade of B, while PEP has a Value grade of D.
CCEP 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 CCEP is likely the superior value option right now.