Investors interested in stocks from the Aerospace - Defense Equipment sector have probably already heard of Raytheon and Aerojet Rocketdyne Holdings (AJRD). 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.
Raytheon has a Zacks Rank of #2 (Buy), while Aerojet Rocketdyne Holdings has a Zacks Rank of #4 (Sell) right now. The Zacks Rank favors stocks that have recently seen positive revisions to their earnings estimates, so investors should rest assured that RTN has an improving earnings outlook. 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 Style Score Value grade factors in a variety of key fundamental metrics, including the popular P/E ratio, P/S ratio, earnings yield, cash flow per share, and a number of other key stats that are commonly used by value investors.
RTN currently has a forward P/E ratio of 17.11, while AJRD has a forward P/E of 26.10. We also note that RTN has a PEG ratio of 1.60. 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. AJRD currently has a PEG ratio of 4.75.
Another notable valuation metric for RTN is its P/B ratio of 5.03. 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, AJRD has a P/B of 7.23.
Based on these metrics and many more, RTN holds a Value grade of B, while AJRD has a Value grade of D.
RTN has seen stronger estimate revision activity and sports more attractive valuation metrics than AJRD, so it seems like value investors will conclude that RTN is the superior option right now.