Investors with an interest in Insurance - Property and Casualty stocks have likely encountered both Essent Group (ESNT) and Cincinnati Financial (CINF). But which of these two stocks presents investors with the better value opportunity right now? 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.
Right now, Essent Group is sporting a Zacks Rank of #2 (Buy), while Cincinnati Financial has a Zacks Rank of #3 (Hold). This means that ESNT's earnings estimate revision activity has been more impressive, so investors should feel comfortable with its improving analyst outlook. However, value investors will care about much more than just this.
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.
ESNT currently has a forward P/E ratio of 8.22, while CINF has a forward P/E of 19.96. We also note that ESNT has a PEG ratio of 1.65. 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. CINF currently has a PEG ratio of 3.73.
Another notable valuation metric for ESNT is its P/B ratio of 0.98. 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, CINF has a P/B of 1.69.
These metrics, and several others, help ESNT earn a Value grade of B, while CINF has been given a Value grade of C.
ESNT has seen stronger estimate revision activity and sports more attractive valuation metrics than CINF, so it seems like value investors will conclude that ESNT is the superior option right now.
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Essent Group Ltd. (ESNT): Free Stock Analysis Report
Cincinnati Financial Corporation (CINF): Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).