Investors interested in stocks from the Large Cap Pharmaceuticals sector have probably already heard of Pfizer (PFE) and Eli Lilly (LLY). But which of these two companies is the best option for those looking for undervalued stocks? Let's take a closer look.
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 Zacks Rank favors stocks with strong earnings estimate revision trends, and our Style Scores highlight companies with specific traits.
Right now, Pfizer is sporting a Zacks Rank of #2 (Buy), while Eli Lilly has a Zacks Rank of #3 (Hold). This system places an emphasis on companies that have seen positive earnings estimate revisions, so investors should feel comfortable knowing that PFE 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 highlights undervalued companies by looking at a variety of key metrics, including the popular P/E ratio, as well as the P/S ratio, earnings yield, cash flow per share, and a variety of other fundamentals that have been used by value investors for years.
PFE currently has a forward P/E ratio of 7.49, while LLY has a forward P/E of 34.04. We also note that PFE has a PEG ratio of 0.83. This metric is used similarly to the famous P/E ratio, but the PEG ratio also takes into account the stock's expected earnings growth rate. LLY currently has a PEG ratio of 1.09.
Another notable valuation metric for PFE is its P/B ratio of 1.44. The P/B ratio is used to compare a stock's market value with its book value, which is defined as total assets minus total liabilities. For comparison, LLY has a P/B of 45.19.
Based on these metrics and many more, PFE holds a Value grade of A, while LLY has a Value grade of C.
PFE is currently sporting an improving earnings outlook, which makes it stick out in our Zacks Rank model. And, based on the above valuation metrics, we feel that PFE is likely the superior value option right now.
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Pfizer Inc. (PFE): Free Stock Analysis Report Eli Lilly and Company (LLY): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).
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