Investors with an interest in Beverages - Alcohol stocks have likely encountered both Ambev (ABEV) and Brown-Forman B (BF.B). 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 Zacks Rank is a proven strategy that targets companies with positive earnings estimate revision trends, while our Style Scores work to grade companies based on specific traits.
Ambev and Brown-Forman B are sporting Zacks Ranks of #2 (Buy) and #3 (Hold), respectively, right now. This means that ABEV's earnings estimate revision activity has been more impressive, so investors should feel comfortable with its improving analyst outlook. But this is only part of the picture for value investors.
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.
ABEV currently has a forward P/E ratio of 16.65, while BF.B has a forward P/E of 17.47. We also note that ABEV has a PEG ratio of 2.27. This figure is similar to the commonly-used P/E ratio, with the PEG ratio also factoring in a company's expected earnings growth rate. BF.B currently has a PEG ratio of 7.80.
Another notable valuation metric for ABEV is its P/B ratio of 3.05. 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, BF.B has a P/B of 3.35.
Based on these metrics and many more, ABEV holds a Value grade of B, while BF.B has a Value grade of D.
ABEV stands above BF.B thanks to its solid earnings outlook, and based on these valuation figures, we also feel that ABEV is the superior value option right now.
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Today, See These 5 Potential Home Runs >>Ambev S.A. (ABEV) : Free Stock Analysis Report
Brown-Forman Corporation (BF.B) : Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
