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Investors looking for stocks in the Diversified Operations sector might want to consider either Federal Signal (FSS) or 3M (MMM). But which of these two companies is the best option for those looking for undervalued stocks? Let's 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.
Federal Signal has a Zacks Rank of #2 (Buy), while 3M has a Zacks Rank of #3 (Hold) right now. Investors should feel comfortable knowing that FSS likely has seen a stronger improvement to its earnings outlook than MMM 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.
FSS currently has a forward P/E ratio of 17.68, while MMM has a forward P/E of 18.75. We also note that FSS has a PEG ratio of 1.18. This popular metric is similar to the widely-known P/E ratio, with the difference being that the PEG ratio also takes into account the company's expected earnings growth rate. MMM currently has a PEG ratio of 1.97.
Another notable valuation metric for FSS is its P/B ratio of 2.64. The P/B ratio pits a stock's market value against its book value, which is defined as total assets minus total liabilities. For comparison, MMM has a P/B of 7.73.
These metrics, and several others, help FSS earn a Value grade of B, while MMM has been given a Value grade of C.
FSS has seen stronger estimate revision activity and sports more attractive valuation metrics than MMM, so it seems like value investors will conclude that FSS is the superior option right now.
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Federal Signal Corporation (FSS) : Free Stock Analysis Report
3M Company (MMM) : Free Stock Analysis Report
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