Investors interested in stocks from the Aerospace - Defense Equipment sector have probably already heard of Bae Systems PLC (BAESY) and Heico Corporation (HEI). But which of these two companies is the best option for those looking for undervalued stocks? 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 puts an emphasis on earnings estimates and estimate revisions, while our Style Scores work to identify stocks with specific traits.
Currently, Bae Systems PLC has a Zacks Rank of #2 (Buy), while Heico Corporation has a Zacks Rank of #3 (Hold). The Zacks Rank favors stocks that have recently seen positive revisions to their earnings estimates, so investors should rest assured that BAESY has an improving earnings outlook. But this is just one piece of the puzzle for value investors.
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.
Our Value category highlights undervalued companies by looking at a variety of key metrics, including the popular P/E ratio, as well as the P/S ratio, earnings yield, cash flow per share, and a variety of other fundamentals that have been used by value investors for years.
BAESY currently has a forward P/E ratio of 17.81, while HEI has a forward P/E of 56.84. We also note that BAESY has a PEG ratio of 1.30. 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. HEI currently has a PEG ratio of 4.14.
Another notable valuation metric for BAESY is its P/B ratio of 2.82. 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, HEI has a P/B of 8.39.
Based on these metrics and many more, BAESY holds a Value grade of A, while HEI has a Value grade of D.
BAESY sticks out from HEI in both our Zacks Rank and Style Scores models, so value investors will likely feel that BAESY is the better option right now.
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