Investors interested in stocks from the Banks - Major Regional sector have probably already heard of U.S. Bancorp (USB) and The Bank of New York Mellon Corporation (BK). But which of these two companies is the best option for those looking for undervalued stocks? 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 emphasizes companies with positive estimate revision trends, and our Style Scores highlight stocks with specific traits.
Currently, both U.S. Bancorp and The Bank of New York Mellon Corporation are holding a Zacks Rank of #2 (Buy). This means that both companies have witnessed positive earnings estimate revisions, so investors should feel comfortable knowing that both of these stocks have an improving earnings outlook. But this is just one piece of the puzzle 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 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.
USB currently has a forward P/E ratio of 10.78, while BK has a forward P/E of 15.14. We also note that USB has a PEG ratio of 0.93. This figure is similar to the commonly-used P/E ratio, with the PEG ratio also factoring in a company's expected earnings growth rate. BK currently has a PEG ratio of 1.01.
Another notable valuation metric for USB is its P/B ratio of 1.34. The P/B ratio pits a stock's market value against its book value, which is defined as total assets minus total liabilities. For comparison, BK has a P/B of 1.97.
Based on these metrics and many more, USB holds a Value grade of B, while BK has a Value grade of D.
Both USB and BK are impressive stocks with solid earnings outlooks, but based on these valuation figures, we feel that USB is the superior value option right now.
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U.S. Bancorp (USB): Free Stock Analysis Report The Bank of New York Mellon Corporation (BK): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).
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