Investors interested in stocks from the Banks - Major Regional sector have probably already heard of State Street Corporation (STT) and The Bank of New York Mellon Corporation (BK). 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 emphasizes companies with positive estimate revision trends, and our Style Scores highlight stocks with specific traits.
Right now, State Street Corporation is sporting a Zacks Rank of #2 (Buy), while The Bank of New York Mellon Corporation has a Zacks Rank of #3 (Hold). This means that STT'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 analyze a variety of traditional, tried-and-true metrics to help find companies 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.
STT currently has a forward P/E ratio of 12.03, while BK has a forward P/E of 15.06. We also note that STT has a PEG ratio of 0.81. This metric is used similarly to the famous P/E ratio, but the PEG ratio also takes into account the stock's expected earnings growth rate. BK currently has a PEG ratio of 0.97.
Another notable valuation metric for STT is its P/B ratio of 1.69. 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, BK has a P/B of 2.27.
Based on these metrics and many more, STT holds a Value grade of B, while BK has a Value grade of D.
STT stands above BK thanks to its solid earnings outlook, and based on these valuation figures, we also feel that STT is the superior value option right now.
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State Street Corporation (STT): Free Stock Analysis Report
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This article originally published on Zacks Investment Research (zacks.com).