Investors with an interest in Aerospace - Defense stocks have likely encountered both General Dynamics (GD) and RTX (RTX). But which of these two stocks is more attractive to value investors? We'll need to take a closer look to find out.
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 favors stocks with strong earnings estimate revision trends, and our Style Scores highlight companies with specific traits.
Right now, both General Dynamics and RTX are sporting a Zacks Rank of #2 (Buy). The Zacks Rank favors stocks that have recently seen positive revisions to their earnings estimates, so investors should rest assured that both of these companies 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.
GD currently has a forward P/E ratio of 22.72, while RTX has a forward P/E of 29.13. We also note that GD has a PEG ratio of 2.34. 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. RTX currently has a PEG ratio of 2.85.
Another notable valuation metric for GD is its P/B ratio of 3.91. 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, RTX has a P/B of 3.99.
These metrics, and several others, help GD earn a Value grade of B, while RTX has been given a Value grade of C.
Both GD and RTX are impressive stocks with solid earnings outlooks, but based on these valuation figures, we feel that GD is the superior value option right now.
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General Dynamics Corporation (GD): Free Stock Analysis Report
RTX Corporation (RTX): Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).