Investors with an interest in Automotive - Original Equipment stocks have likely encountered both Lear (LEA) and Modine (MOD). But which of these two stocks presents investors with the better value opportunity right now? Let's take a closer look.
The best way to find great value stocks is to pair a strong Zacks Rank with an impressive 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.
Right now, both Lear and Modine are sporting a Zacks Rank of #2 (Buy). This system places an emphasis on companies that have seen positive earnings estimate revisions, so investors should feel comfortable knowing that these stocks have improving earnings outlooks. However, value investors will care about much more than just this.
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 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.
LEA currently has a forward P/E ratio of 9.64, while MOD has a forward P/E of 32.02. We also note that LEA has a PEG ratio of 0.69. 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. MOD currently has a PEG ratio of 0.80.
Another notable valuation metric for LEA is its P/B ratio of 1.36. 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, MOD has a P/B of 10.83.
Based on these metrics and many more, LEA holds a Value grade of A, while MOD has a Value grade of C.
Both LEA and MOD are impressive stocks with solid earnings outlooks, but based on these valuation figures, we feel that LEA is the superior value option right now.
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Lear Corporation (LEA): Free Stock Analysis Report
Modine Manufacturing Company (MOD): Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).