ABEV vs. DEO: Which Stock Is the Better Value Option?

Investors interested in Beverages - Alcohol stocks are likely familiar with Ambev (ABEV) 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.

The best way to find great value stocks is to pair a strong Zacks Rank with an impressive grade in the Value category of our Style Scores system. The Zacks Rank favors stocks with strong earnings estimate revision trends, and our Style Scores highlight companies with specific traits.

Currently, Ambev has a Zacks Rank of #2 (Buy), while Diageo has a Zacks Rank of #4 (Sell). This system places an emphasis on companies that have seen positive earnings estimate revisions, so investors should feel comfortable knowing that ABEV is likely seeing its earnings outlook improve to a greater extent. But this is just one piece of the puzzle for value investors.

Value investors are also interested in a number of tried-and-true valuation metrics that help show when a company is undervalued at its 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.

ABEV currently has a forward P/E ratio of 12.51, while DEO has a forward P/E of 14.44. We also note that ABEV has a PEG ratio of 2.20. 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. DEO currently has a PEG ratio of 4.26.

Another notable valuation metric for ABEV is its P/B ratio of 2.1. 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, DEO has a P/B of 4.06.

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

ABEV stands above DEO thanks to its solid earnings outlook, and based on these valuation figures, we also feel that ABEV 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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