Investors looking for stocks in the Manufacturing - Electronics sector might want to consider either Rexnord (RXN) or A.O. Smith (AOS). But which of these two stocks presents investors with the better value opportunity right now? Let's 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 proven Zacks Rank puts an emphasis on earnings estimates and estimate revisions, while our Style Scores work to identify stocks with specific traits.
Rexnord and A.O. Smith are sporting Zacks Ranks of #2 (Buy) and #3 (Hold), respectively, 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. But this is only part of the picture for value investors.
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 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.
RXN currently has a forward P/E ratio of 13.73, while AOS has a forward P/E of 18.99. We also note that RXN has a PEG ratio of 0.89. 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. AOS currently has a PEG ratio of 1.68.
Another notable valuation metric for RXN is its P/B ratio of 2.21. The P/B ratio is used to compare a stock's market value with its book value, which is defined as total assets minus total liabilities. For comparison, AOS has a P/B of 5.12.
These metrics, and several others, help RXN earn a Value grade of B, while AOS has been given a 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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