Investors with an interest in Manufacturing - Electronics stocks have likely encountered both Rexnord (RXN) and A.O. Smith (AOS). 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 proven Zacks Rank puts an emphasis on earnings estimates and estimate revisions, while our Style Scores work to identify stocks with specific traits.
Rexnord has a Zacks Rank of #2 (Buy), while A.O. Smith has a Zacks Rank of #4 (Sell) right now. This means that RXN'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.
RXN currently has a forward P/E ratio of 13.09, while AOS has a forward P/E of 16.75. We also note that RXN has a PEG ratio of 0.80. 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. AOS currently has a PEG ratio of 1.48.
Another notable valuation metric for RXN is its P/B ratio of 2.09. 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, AOS has a P/B of 4.69.
These are just a few of the metrics contributing to RXN's Value grade of A and AOS's Value grade of C.
RXN 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 RXN is likely the superior value option right now.
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Rexnord Corporation (RXN) : Free Stock Analysis Report
A. O. Smith Corporation (AOS) : Free Stock Analysis Report
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