Investors with an interest in Medical Info Systems stocks have likely encountered both Change Healthcare (CHNG) and Cerner (CERN). 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.
Change Healthcare has a Zacks Rank of #2 (Buy), while Cerner has a Zacks Rank of #3 (Hold) right now. This means that CHNG'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 analyze a variety of traditional, tried-and-true metrics to help find companies 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.
CHNG currently has a forward P/E ratio of 10.85, while CERN has a forward P/E of 25.21. We also note that CHNG has a PEG ratio of 1.55. 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. CERN currently has a PEG ratio of 1.85.
Another notable valuation metric for CHNG is its P/B ratio of 1.07. The P/B ratio is used to compare a stock's market value with its book value, which is defined as total assets minus total liabilities. For comparison, CERN has a P/B of 5.74.
Based on these metrics and many more, CHNG holds a Value grade of A, while CERN has a Value grade of C.
CHNG sticks out from CERN in both our Zacks Rank and Style Scores models, so value investors will likely feel that CHNG is the better option right now.