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BAESY vs. HEI: Which Stock Is the Better Value Option?

Zacks Equity Research
·2-min read

Investors interested in stocks from the Aerospace - Defense Equipment sector have probably already heard of Bae Systems PLC (BAESY) and Heico Corporation (HEI). But which of these two companies is the best option for those looking for undervalued stocks? 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 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.

Bae Systems PLC has a Zacks Rank of #2 (Buy), while Heico Corporation has a Zacks Rank of #3 (Hold) right now. Investors should feel comfortable knowing that BAESY likely has seen a stronger improvement to its earnings outlook than HEI has recently. 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.

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.

BAESY currently has a forward P/E ratio of 10.56, while HEI has a forward P/E of 57.90. We also note that BAESY has a PEG ratio of 2.57. 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. HEI currently has a PEG ratio of 7.30.

Another notable valuation metric for BAESY is its P/B ratio of 3.76. 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, HEI has a P/B of 8.18.

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

BAESY has seen stronger estimate revision activity and sports more attractive valuation metrics than HEI, so it seems like value investors will conclude that BAESY is the superior option right now.

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Zacks Investment Research