Investors with an interest in Aerospace - Defense stocks have likely encountered both L3Harris (LHX) and Airbus Group (EADSY). 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 proven Zacks Rank emphasizes companies with positive estimate revision trends, and our Style Scores highlight stocks with specific traits.
L3Harris has a Zacks Rank of #2 (Buy), while Airbus Group has a Zacks Rank of #4 (Sell) right now. This system places an emphasis on companies that have seen positive earnings estimate revisions, so investors should feel comfortable knowing that LHX is likely seeing its earnings outlook improve to a greater extent. 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 Style Score Value grade factors in a variety of key fundamental metrics, including the popular P/E ratio, P/S ratio, earnings yield, cash flow per share, and a number of other key stats that are commonly used by value investors.
LHX currently has a forward P/E ratio of 16.96, while EADSY has a forward P/E of 29.89. We also note that LHX has a PEG ratio of 1.85. 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. EADSY currently has a PEG ratio of 3.26.
Another notable valuation metric for LHX is its P/B ratio of 2.21. 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, EADSY has a P/B of 6.82.
These metrics, and several others, help LHX earn a Value grade of B, while EADSY has been given a Value grade of C.
LHX stands above EADSY thanks to its solid earnings outlook, and based on these valuation figures, we also feel that LHX is 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.
