CVS or DHR: Which Is the Better Value Stock Right Now?

Investors interested in stocks from the Medical Services sector have probably already heard of CVS Health (CVS) and Danaher (DHR). But which of these two stocks is more attractive to value investors? We'll need to take a closer look to find out.

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

Currently, CVS Health has a Zacks Rank of #2 (Buy), while Danaher 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 CVS has an improving earnings outlook. However, value investors will care about much more than just this.

Value investors analyze a variety of traditional, tried-and-true metrics to help find companies 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 9.98, while DHR has a forward P/E of 23.97. We also note that CVS has a PEG ratio of 0.87. 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. DHR currently has a PEG ratio of 2.54.

Another notable valuation metric for CVS is its P/B ratio of 1. 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, DHR has a P/B of 2.60.

These are just a few of the metrics contributing to CVS's Value grade of A and DHR's Value grade of D.

CVS 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 CVS is likely the superior value option right now.

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

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