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UTX or DHR: Which Is the Better Value Stock Right Now?

Zacks Equity Research

Investors looking for stocks in the Diversified Operations sector might want to consider either United Technologies (UTX) or Danaher (DHR). 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 Zacks Rank is a proven strategy that targets companies with positive earnings estimate revision trends, while our Style Scores work to grade companies based on specific traits.

Right now, United Technologies is sporting a Zacks Rank of #2 (Buy), while Danaher has a Zacks Rank of #3 (Hold). This means that UTX's earnings estimate revision activity has been more impressive, so investors should feel comfortable with its improving analyst outlook. 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 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.

UTX currently has a forward P/E ratio of 15.37, while DHR has a forward P/E of 28.28. We also note that UTX has a PEG ratio of 1.75. This metric is used similarly to the famous P/E ratio, but the PEG ratio also takes into account the stock's expected earnings growth rate. DHR currently has a PEG ratio of 2.44.

Another notable valuation metric for UTX is its P/B ratio of 2.48. Investors use the P/B ratio to look at a stock's market value versus its book value, which is defined as total assets minus total liabilities. By comparison, DHR has a P/B of 3.17.

These are just a few of the metrics contributing to UTX's Value grade of B and DHR's Value grade of D.

UTX has seen stronger estimate revision activity and sports more attractive valuation metrics than DHR, so it seems like value investors will conclude that UTX is the superior option right now.


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