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FERGY or ITW: Which Is the Better Value Stock Right Now?

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

Investors with an interest in Manufacturing - General Industrial stocks have likely encountered both Wolseley PLC (FERGY) and Illinois Tool Works (ITW). 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.

Everyone has their own methods for finding great value opportunities, but our model includes pairing an impressive grade in the Value category of our Style Scores system with a strong Zacks Rank. The Zacks Rank favors stocks with strong earnings estimate revision trends, and our Style Scores highlight companies with specific traits.

Currently, Wolseley PLC has a Zacks Rank of #2 (Buy), while Illinois Tool Works has a Zacks Rank of #3 (Hold). Investors should feel comfortable knowing that FERGY likely has seen a stronger improvement to its earnings outlook than ITW has recently. But this is only part of the picture for value investors.

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 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.

FERGY currently has a forward P/E ratio of 13.08, while ITW has a forward P/E of 16.12. We also note that FERGY has a PEG ratio of 1.59. 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. ITW currently has a PEG ratio of 1.63.

Another notable valuation metric for FERGY is its P/B ratio of 3.52. 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, ITW has a P/B of 12.17.

These are just a few of the metrics contributing to FERGY's Value grade of A and ITW's Value grade of C.

FERGY 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 FERGY is likely the superior value option right now.


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