Investors interested in stocks from the Medical - Outpatient and Home Healthcare sector have probably already heard of Quest Diagnostics (DGX) and Encompass Health (EHC). But which of these two stocks offers value investors a better bang for their buck right now? We'll need to 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 puts an emphasis on earnings estimates and estimate revisions, while our Style Scores work to identify stocks with specific traits.
Currently, Quest Diagnostics has a Zacks Rank of #2 (Buy), while Encompass Health has a Zacks Rank of #3 (Hold). This system places an emphasis on companies that have seen positive earnings estimate revisions, so investors should feel comfortable knowing that DGX is likely seeing its earnings outlook improve to a greater extent. But this is just one piece of the puzzle for value investors.
Value investors also try to analyze a wide range of traditional figures and metrics to help determine whether a company is undervalued at its current share price levels.
Our Value category highlights undervalued companies by looking at a variety of key metrics, including the popular P/E ratio, as well as the P/S ratio, earnings yield, cash flow per share, and a variety of other fundamentals that have been used by value investors for years.
DGX currently has a forward P/E ratio of 23.10, while EHC has a forward P/E of 23.54. We also note that DGX has a PEG ratio of 3.27. This popular figure is similar to the widely-used P/E ratio, but the PEG ratio also considers a company's expected EPS growth rate. EHC currently has a PEG ratio of 8.32.
Another notable valuation metric for DGX is its P/B ratio of 2.78. 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, EHC has a P/B of 4.06.
These are just a few of the metrics contributing to DGX's Value grade of B and EHC's Value grade of C.
DGX is currently sporting an improving earnings outlook, which makes it stick out in our Zacks Rank model. And, based on the above valuation metrics, we feel that DGX is likely the superior value option right now.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Quest Diagnostics Incorporated (DGX) : Free Stock Analysis Report
Encompass Health Corporation (EHC) : Free Stock Analysis Report
To read this article on Zacks.com click here.