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HIW or DLR: Which Is the Better Value Stock Right Now?

Investors interested in stocks from the REIT and Equity Trust - Other sector have probably already heard of Highwoods Properties (HIW) and Digital Realty Trust (DLR). 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.

Currently, Highwoods Properties has a Zacks Rank of #2 (Buy), while Digital Realty Trust has a Zacks Rank of #3 (Hold). Investors should feel comfortable knowing that HIW likely has seen a stronger improvement to its earnings outlook than DLR has recently. However, value investors will care about much more than just this.

Value investors also try to analyze a wide range of traditional figures and metrics to help determine whether 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.

HIW currently has a forward P/E ratio of 10.52, while DLR has a forward P/E of 24.09. We also note that HIW has a PEG ratio of 2.21. 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. DLR currently has a PEG ratio of 3.55.

Another notable valuation metric for HIW is its P/B ratio of 1.68. The P/B ratio is used to compare a stock's market value with its book value, which is defined as total assets minus total liabilities. For comparison, DLR has a P/B of 2.48.

These metrics, and several others, help HIW earn a Value grade of B, while DLR has been given a Value grade of D.

HIW is currently sporting an improving earnings outlook, which makes it stick out in our Zacks Rank model. And, based on the above valuation metrics, we feel that HIW is likely the superior value option right now.


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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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