Investors with an interest in Banks - Major Regional stocks have likely encountered both U.S. Bancorp (USB) and Northern Trust Corporation (NTRS). 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.
U.S. Bancorp and Northern Trust Corporation are both sporting a Zacks Rank of #2 (Buy) right now. Investors should feel comfortable knowing that both of these stocks have an improving earnings outlook since the Zacks Rank favors companies that have witnessed positive analyst estimate revisions. But this is just one factor that value investors are interested in.
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.
USB currently has a forward P/E ratio of 12.27, while NTRS has a forward P/E of 15.84. We also note that USB has a PEG ratio of 1.05. 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. NTRS currently has a PEG ratio of 1.14.
Another notable valuation metric for USB is its P/B ratio of 1.62. 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, NTRS has a P/B of 2.67.
These are just a few of the metrics contributing to USB's Value grade of B and NTRS's Value grade of D.
Both USB and NTRS are impressive stocks with solid earnings outlooks, but based on these valuation figures, we feel that USB is the superior value option right now.
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U.S. Bancorp (USB): Free Stock Analysis Report
Northern Trust Corporation (NTRS): Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).