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DRI vs. WEN: Which Stock Should Value Investors Buy Now?

Zacks Equity Research
E-Trade (ETFC) reported earnings 30 days ago. What's next for the stock? We take a look at earnings estimates for some clues.

Investors interested in Retail - Restaurants stocks are likely familiar with Darden Restaurants (DRI) and Wendy's (WEN). But which of these two stocks is more attractive to value investors? We'll need to take a closer look to find out.

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.

Darden Restaurants has a Zacks Rank of #2 (Buy), while Wendy's has a Zacks Rank of #3 (Hold) right now. Investors should feel comfortable knowing that DRI likely has seen a stronger improvement to its earnings outlook than WEN has recently. But this is only part of the picture 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.

DRI currently has a forward P/E ratio of 20.61, while WEN has a forward P/E of 29.33. We also note that DRI has a PEG ratio of 2.01. 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. WEN currently has a PEG ratio of 2.18.

Another notable valuation metric for DRI is its P/B ratio of 6.36. The P/B is a method of comparing a stock's market value to its book value, which is defined as total assets minus total liabilities. By comparison, WEN has a P/B of 6.55.

These metrics, and several others, help DRI earn a Value grade of B, while WEN has been given a Value grade of D.

DRI stands above WEN thanks to its solid earnings outlook, and based on these valuation figures, we also feel that DRI is the superior value option right now.


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Darden Restaurants, Inc. (DRI) : Free Stock Analysis Report
 
The Wendy's Company (WEN) : Free Stock Analysis Report
 
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