Investors interested in Aerospace - Defense stocks are likely familiar with Textron (TXT - Free Report) and Lockheed Martin (LMT - Free Report) . But which of these two stocks offers value investors a better bang for their buck right now? We'll need to 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 proven Zacks Rank puts an emphasis on earnings estimates and estimate revisions, while our Style Scores work to identify stocks with specific traits.
Textron and Lockheed Martin are sporting Zacks Ranks of #2 (Buy) and #3 (Hold), respectively, right now. The Zacks Rank favors stocks that have recently seen positive revisions to their earnings estimates, so investors should rest assured that TXT has an improving earnings 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.
TXT currently has a forward P/E ratio of 7.88, while LMT has a forward P/E of 13.22. We also note that TXT has a PEG ratio of 0.71. This popular metric is similar to the widely-known P/E ratio, with the difference being that the PEG ratio also takes into account the company's expected earnings growth rate. LMT currently has a PEG ratio of 1.92.
Another notable valuation metric for TXT is its P/B ratio of 1.16. 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, LMT has a P/B of 28.36.
These are just a few of the metrics contributing to TXT's Value grade of A and LMT's Value grade of D.
TXT stands above LMT thanks to its solid earnings outlook, and based on these valuation figures, we also feel that TXT is the superior value option right now.