Investors with an interest in Food - Meat Products stocks have likely encountered both Pilgrim's Pride (PPC) and Hormel Foods (HRL). But which of these two companies is the best option for those looking for undervalued stocks? Let's take a closer look.
The best way to find great value stocks is to pair a strong Zacks Rank with an impressive grade in the Value category of our Style Scores system. The proven Zacks Rank emphasizes companies with positive estimate revision trends, and our Style Scores highlight stocks with specific traits.
Right now, Pilgrim's Pride is sporting a Zacks Rank of #2 (Buy), while Hormel Foods has a Zacks Rank of #3 (Hold). The Zacks Rank favors stocks that have recently seen positive revisions to their earnings estimates, so investors should rest assured that PPC has an improving earnings outlook. But this is just one factor that value investors are interested in.
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 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.
PPC currently has a forward P/E ratio of 10.63, while HRL has a forward P/E of 25.50. We also note that PPC has a PEG ratio of 0.47. 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. HRL currently has a PEG ratio of 3.97.
Another notable valuation metric for PPC is its P/B ratio of 2.60. 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, HRL has a P/B of 3.93.
These metrics, and several others, help PPC earn a Value grade of A, while HRL has been given a Value grade of C.
PPC stands above HRL thanks to its solid earnings outlook, and based on these valuation figures, we also feel that PPC is the superior value option right now.