Investors interested in Diversified Communication Services stocks are likely familiar with Telefonica (TEF) and Telus (TU). But which of these two stocks presents investors with the better value opportunity right now? 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 is a proven strategy that targets companies with positive earnings estimate revision trends, while our Style Scores work to grade companies based on specific traits.
Right now, Telefonica is sporting a Zacks Rank of #2 (Buy), while Telus 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 TEF is likely seeing its earnings outlook improve to a greater extent. But this is just one factor that value investors are interested in.
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.
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.
TEF currently has a forward P/E ratio of 13.39, while TU has a forward P/E of 21.68. We also note that TEF has a PEG ratio of 0.78. 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. TU currently has a PEG ratio of 5.15.
Another notable valuation metric for TEF is its P/B ratio of 1.20. 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, TU has a P/B of 2.12.
Based on these metrics and many more, TEF holds a Value grade of A, while TU has a Value grade of C.
TEF sticks out from TU in both our Zacks Rank and Style Scores models, so value investors will likely feel that TEF is the better option right now.
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Telefonica SA (TEF): Free Stock Analysis Report TELUS Corporation (TU): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).
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