Investors interested in Beverages - Alcohol stocks are likely familiar with Cervecerias Unidas (CCU) and Diageo (DEO). 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 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.
Currently, Cervecerias Unidas has a Zacks Rank of #2 (Buy), while Diageo has a Zacks Rank of #3 (Hold). Investors should feel comfortable knowing that CCU likely has seen a stronger improvement to its earnings outlook than DEO has recently. However, value investors will care about much more than just this.
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.
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.
CCU currently has a forward P/E ratio of 18.73, while DEO has a forward P/E of 30.13. We also note that CCU has a PEG ratio of 1.71. This figure is similar to the commonly-used P/E ratio, with the PEG ratio also factoring in a company's expected earnings growth rate. DEO currently has a PEG ratio of 3.74.
Another notable valuation metric for CCU is its P/B ratio of 1.69. 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, DEO has a P/B of 10.14.
These are just a few of the metrics contributing to CCU's Value grade of B and DEO's Value grade of C.
CCU sticks out from DEO in both our Zacks Rank and Style Scores models, so value investors will likely feel that CCU is the better option right now.
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Compania Cervecerias Unidas, S.A. (CCU) : Free Stock Analysis Report
Diageo plc (DEO) : Free Stock Analysis Report
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