GD vs. GE: Which Stock Is the Better Value Option?

Investors looking for stocks in the Aerospace - Defense sector might want to consider either General Dynamics (GD) or GE Aerospace (GE). But which of these two companies is the best option for those looking for undervalued stocks? 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 proven Zacks Rank puts an emphasis on earnings estimates and estimate revisions, while our Style Scores work to identify stocks with specific traits.

General Dynamics and GE Aerospace are sporting Zacks Ranks of #2 (Buy) and #3 (Hold), respectively, right now. This means that GD's earnings estimate revision activity has been more impressive, so investors should feel comfortable with its improving analyst outlook. But this is just one factor that value investors are interested in.

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.

GD currently has a forward P/E ratio of 22.40, while GE has a forward P/E of 43.63. We also note that GD has a PEG ratio of 2.25. This popular figure is similar to the widely-used P/E ratio, but the PEG ratio also considers a company's expected EPS growth rate. GE currently has a PEG ratio of 2.64.

Another notable valuation metric for GD is its P/B ratio of 3.87. 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, GE has a P/B of 19.81.

Based on these metrics and many more, GD holds a Value grade of B, while GE has a Value grade of D.

GD has seen stronger estimate revision activity and sports more attractive valuation metrics than GE, so it seems like value investors will conclude that GD is the superior option right now.

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This article originally published on Zacks Investment Research (zacks.com).

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