Investors interested in Aerospace - Defense stocks are likely familiar with Textron (TXT) and RTX (RTX). But which of these two companies is the best option for those looking for undervalued stocks? Let's take a closer look.
There are plenty of strategies for discovering value stocks, but we have found that pairing a strong Zacks Rank with an impressive grade in the Value category of our Style Scores system produces the best returns. The proven Zacks Rank emphasizes companies with positive estimate revision trends, and our Style Scores highlight stocks with specific traits.
Textron and RTX are sporting Zacks Ranks of #2 (Buy) and #3 (Hold), respectively, right now. This means that TXT'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 Style Score Value grade factors in a variety of key fundamental metrics, including the popular P/E ratio, P/S ratio, earnings yield, cash flow per share, and a number of other key stats that are commonly used by value investors.
TXT currently has a forward P/E ratio of 13.44, while RTX has a forward P/E of 25.43. We also note that TXT has a PEG ratio of 1.33. 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 2.49.
Another notable valuation metric for TXT is its P/B ratio of 1.95. 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, RTX has a P/B of 3.45.
These are just a few of the metrics contributing to TXT's Value grade of A and RTX's Value grade of C.
TXT sticks out from RTX in both our Zacks Rank and Style Scores models, so value investors will likely feel that TXT is the better option right now.
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Textron Inc. (TXT): Free Stock Analysis Report
RTX Corporation (RTX): Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).