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MARKETS LIVE BLOG:

STOCKS SLIDE AFTER META'S REALITY CHECK, DOWNBEAT GDP

Caterpillar sinks 7% after earnings, management sees weakness in Europe, Asia-Pacific

MCK or WST: Which Is the Better Value Stock Right Now?

Zacks Equity Research
·2 min read

Investors interested in stocks from the Medical - Dental Supplies sector have probably already heard of McKesson (MCK) and West Pharmaceutical Services (WST). 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.

McKesson has a Zacks Rank of #2 (Buy), while West Pharmaceutical Services has a Zacks Rank of #3 (Hold) right now. This system places an emphasis on companies that have seen positive earnings estimate revisions, so investors should feel comfortable knowing that MCK is likely seeing its earnings outlook improve to a greater extent. But this is only part of the picture for value investors.

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.

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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.

MCK currently has a forward P/E ratio of 10, while WST has a forward P/E of 69.86. We also note that MCK 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. WST currently has a PEG ratio of 4.02.

Another notable valuation metric for MCK is its P/B ratio of 4.34. 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, WST has a P/B of 13.71.

Based on these metrics and many more, MCK holds a Value grade of B, while WST has a Value grade of D.

MCK stands above WST thanks to its solid earnings outlook, and based on these valuation figures, we also feel that MCK is the superior value option right now.


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McKesson Corporation (MCK) : Free Stock Analysis Report
 
West Pharmaceutical Services, Inc. (WST) : Free Stock Analysis Report
 
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Zacks Investment Research