Investors looking for stocks in the Large Cap Pharmaceuticals sector might want to consider either Sanofi (SNY) or Novo Nordisk (NVO). But which of these two stocks presents investors with the better value opportunity right now? 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 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.
Sanofi and Novo Nordisk are sporting Zacks Ranks of #2 (Buy) and #3 (Hold), respectively, right now. This system places an emphasis on companies that have seen positive earnings estimate revisions, so investors should feel comfortable knowing that SNY 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 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.
SNY currently has a forward P/E ratio of 14.27, while NVO has a forward P/E of 21.45. We also note that SNY has a PEG ratio of 2.07. 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. NVO currently has a PEG ratio of 2.20.
Another notable valuation metric for SNY is its P/B ratio of 1.83. 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, NVO has a P/B of 15.99.
These are just a few of the metrics contributing to SNY's Value grade of A and NVO's Value grade of C.
SNY 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 SNY is likely the superior value option right now.
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