CAE vs. BAESY: Which Stock Is the Better Value Option?

Investors interested in Aerospace - Defense Equipment stocks are likely familiar with CAE (CAE) and Bae Systems PLC (BAESY). But which of these two stocks offers value investors a better bang for their buck right now? We'll need to 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, CAE has a Zacks Rank of #2 (Buy), while Bae Systems PLC has a Zacks Rank of #3 (Hold). The Zacks Rank favors stocks that have recently seen positive revisions to their earnings estimates, so investors should rest assured that CAE has an improving earnings outlook. 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.

The Style Score Value grade factors in a variety of key fundamental metrics, including the popular P/E ratio, P/S ratio, earnings yield, cash flow per share, and a number of other key stats that are commonly used by value investors.

CAE currently has a forward P/E ratio of 23.40, while BAESY has a forward P/E of 24.24. We also note that CAE has a PEG ratio of 1.42. 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. BAESY currently has a PEG ratio of 2.03.

Another notable valuation metric for CAE is its P/B ratio of 2.18. 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, BAESY has a P/B of 4.68.

Based on these metrics and many more, CAE holds a Value grade of B, while BAESY has a Value grade of C.

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

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

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