CVS vs. DHR: Which Stock Is the Better Value Option?

Investors looking for stocks in the Medical Services sector might want to consider either CVS Health (CVS) or Danaher (DHR). But which of these two companies is the best option for those looking for undervalued stocks? Let's take a closer look.

Everyone has their own methods for finding great value opportunities, but our model includes pairing an impressive grade in the Value category of our Style Scores system with a strong Zacks Rank. The proven Zacks Rank emphasizes companies with positive estimate revision trends, and our Style Scores highlight stocks with specific traits.

CVS Health has a Zacks Rank of #2 (Buy), while Danaher has a Zacks Rank of #3 (Hold) right now. Investors should feel comfortable knowing that CVS likely has seen a stronger improvement to its earnings outlook than DHR has recently. 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.

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.

CVS currently has a forward P/E ratio of 11.23, while DHR has a forward P/E of 25.34. We also note that CVS has a PEG ratio of 0.98. 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. DHR currently has a PEG ratio of 2.69.

Another notable valuation metric for CVS is its P/B ratio of 1.11. Investors use the P/B ratio to look at a stock's market value versus its book value, which is defined as total assets minus total liabilities. By comparison, DHR has a P/B of 2.74.

Based on these metrics and many more, CVS holds a Value grade of A, while DHR has a Value grade of D.

CVS sticks out from DHR in both our Zacks Rank and Style Scores models, so value investors will likely feel that CVS is the better option right now.

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

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