AZZ or ETN: Which Is the Better Value Stock Right Now?

Investors interested in stocks from the Manufacturing - Electronics sector have probably already heard of AZZ (AZZ) and Eaton (ETN). 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 proven Zacks Rank puts an emphasis on earnings estimates and estimate revisions, while our Style Scores work to identify stocks with specific traits.

AZZ has a Zacks Rank of #2 (Buy), while Eaton has a Zacks Rank of #3 (Hold) right now. Investors should feel comfortable knowing that AZZ likely has seen a stronger improvement to its earnings outlook than ETN has recently. But this is just one factor that value investors are interested in.

Value investors also tend to look at a number of traditional, tried-and-true figures to help them find stocks 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.

AZZ currently has a forward P/E ratio of 13.23, while ETN has a forward P/E of 20.48. We also note that AZZ has a PEG ratio of 0.94. This popular metric is similar to the widely-known P/E ratio, with the difference being that the PEG ratio also takes into account the company's expected earnings growth rate. ETN currently has a PEG ratio of 1.96.

Another notable valuation metric for AZZ is its P/B ratio of 2.23. 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, ETN has a P/B of 5.26.

Based on these metrics and many more, AZZ holds a Value grade of A, while ETN has a Value grade of C.

AZZ 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 AZZ is likely the superior value option right now.

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This article originally published on Zacks Investment Research (zacks.com).

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