Investors interested in stocks from the Beverages - Alcohol sector have probably already heard of Heineken NV (HEINY) and Diageo (DEO). But which of these two stocks presents investors with the better value opportunity right now? Let's take a closer look.
The best way to find great value stocks is to pair a strong Zacks Rank with an impressive grade in the Value category of our Style Scores system. 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, Heineken NV has a Zacks Rank of #2 (Buy), while Diageo has a Zacks Rank of #4 (Sell). This means that HEINY's earnings estimate revision activity has been more impressive, so investors should feel comfortable with its improving analyst outlook. However, value investors will care about much more than just this.
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.
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.
HEINY currently has a forward P/E ratio of 14.81, while DEO has a forward P/E of 16.41. We also note that HEINY has a PEG ratio of 1.90. 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. DEO currently has a PEG ratio of 2.34.
Another notable valuation metric for HEINY is its P/B ratio of 1.88. The P/B is a method of comparing a stock's market value to its book value, which is defined as total assets minus total liabilities. By comparison, DEO has a P/B of 4.75.
These metrics, and several others, help HEINY earn a Value grade of B, while DEO has been given a Value grade of D.
HEINY has seen stronger estimate revision activity and sports more attractive valuation metrics than DEO, so it seems like value investors will conclude that HEINY is the superior option right now.
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Heineken NV (HEINY) : Free Stock Analysis Report
Diageo plc (DEO) : Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
