TEF vs. TU: Which Stock Is the Better Value Option?

Investors interested in stocks from the Diversified Communication Services sector have probably already heard of Telefonica (TEF) and Telus (TU). But which of these two stocks is more attractive to value investors? We'll need to take a closer look to find out.

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 puts an emphasis on earnings estimates and estimate revisions, while our Style Scores work to identify stocks with specific traits.

Telefonica and Telus are sporting Zacks Ranks of #2 (Buy) and #4 (Sell), respectively, right now. The Zacks Rank favors stocks that have recently seen positive revisions to their earnings estimates, so investors should rest assured that TEF has an improving earnings 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.

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.

TEF currently has a forward P/E ratio of 8.95, while TU has a forward P/E of 19.00. We also note that TEF has a PEG ratio of 0.32. 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. TU currently has a PEG ratio of 6.76.

Another notable valuation metric for TEF is its P/B ratio of 0.95. 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, TU has a P/B of 1.58.

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

TEF has seen stronger estimate revision activity and sports more attractive valuation metrics than TU, so it seems like value investors will conclude that TEF is the superior option right now.

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

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