TXT vs. RTX: Which Stock Should Value Investors Buy Now?

Investors interested in Aerospace - Defense stocks are likely familiar with Textron (TXT) and RTX (RTX). But which of these two companies is the best option for those looking for undervalued stocks? Let's take a closer look.

We have found that the best way to discover great value opportunities is to pair a strong Zacks Rank with a great grade in the Value category of our Style Scores system. The proven Zacks Rank emphasizes companies with positive estimate revision trends, and our Style Scores highlight stocks with specific traits.

Currently, Textron has a Zacks Rank of #2 (Buy), while RTX has a Zacks Rank of #3 (Hold). This system places an emphasis on companies that have seen positive earnings estimate revisions, so investors should feel comfortable knowing that TXT is likely seeing its earnings outlook improve to a greater extent. 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.

Our Value category grades stocks based on a number of key metrics, including the tried-and-true P/E ratio, the P/S ratio, earnings yield, and cash flow per share, as well as a variety of other fundamentals that value investors frequently use.

TXT currently has a forward P/E ratio of 13.63, while RTX has a forward P/E of 26.83. We also note that TXT has a PEG ratio of 1.36. 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. RTX currently has a PEG ratio of 2.96.

Another notable valuation metric for TXT is its P/B ratio of 2.01. The P/B is a method of comparing a stock's market value to its book value, which is defined as total assets minus total liabilities. By comparison, RTX has a P/B of 3.32.

These are just a few of the metrics contributing to TXT's Value grade of A and RTX's Value grade of C.

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

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

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