Investors interested in stocks from the Medical - Dental Supplies sector have probably already heard of Patterson Cos. (PDCO) and Becton Dickinson (BDX). But which of these two stocks presents investors with the better value opportunity right now? Let's take a closer look.
There are plenty of strategies for discovering value stocks, but we have found that pairing a strong Zacks Rank with an impressive grade in the Value category of our Style Scores system produces the best returns. The Zacks Rank favors stocks with strong earnings estimate revision trends, and our Style Scores highlight companies with specific traits.
Patterson Cos. and Becton Dickinson are sporting Zacks Ranks of #1 (Strong Buy) and #4 (Sell), respectively, right now. This means that PDCO's earnings estimate revision activity has been more impressive, so investors should feel comfortable with its improving analyst 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.
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.
PDCO currently has a forward P/E ratio of 15.86, while BDX has a forward P/E of 20.01. We also note that PDCO has a PEG ratio of 1.83. 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. BDX currently has a PEG ratio of 1.88.
Another notable valuation metric for PDCO is its P/B ratio of 1.57. The P/B ratio pits a stock's market value against its book value, which is defined as total assets minus total liabilities. For comparison, BDX has a P/B of 3.06.
These metrics, and several others, help PDCO earn a Value grade of B, while BDX has been given a Value grade of D.
PDCO has seen stronger estimate revision activity and sports more attractive valuation metrics than BDX, so it seems like value investors will conclude that PDCO is the superior option right now.