Investors interested in Manufacturing - Electronics stocks are likely familiar with AZZ (AZZ) and Eaton (ETN). But which of these two companies is the best option for those looking for undervalued stocks? Let's take a closer look.
We have found that the best way to discover great value opportunities is to pair a strong Zacks Rank with a great grade in the Value category of our Style Scores system. The proven Zacks Rank puts an emphasis on earnings estimates and estimate revisions, while our Style Scores work to identify stocks with specific traits.
AZZ and Eaton 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 AZZ 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.
AZZ currently has a forward P/E ratio of 15.73, while ETN has a forward P/E of 23.15. We also note that AZZ has a PEG ratio of 1.12. 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. ETN currently has a PEG ratio of 2.38.
Another notable valuation metric for AZZ is its P/B ratio of 2.65. The P/B is a method of comparing a stock's market value to its book value, which is defined as total assets minus total liabilities. By comparison, ETN has a P/B of 5.94.
These are just a few of the metrics contributing to AZZ's Value grade of A and ETN's Value grade of C.
AZZ has seen stronger estimate revision activity and sports more attractive valuation metrics than ETN, so it seems like value investors will conclude that AZZ is the superior option right now.
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Eaton Corporation, PLC (ETN) : 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.
