Investors interested in Diversified Communication Services stocks are likely familiar with Telefonica (TEF) and BCE (BCE). 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 proven Zacks Rank puts an emphasis on earnings estimates and estimate revisions, while our Style Scores work to identify stocks with specific traits.
Telefonica has a Zacks Rank of #2 (Buy), while BCE has a Zacks Rank of #3 (Hold) right now. 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 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.
TEF currently has a forward P/E ratio of 11.94, while BCE has a forward P/E of 19.23. We also note that TEF has a PEG ratio of 0.59. This popular metric is similar to the widely-known P/E ratio, with the difference being that the PEG ratio also takes into account the company's expected earnings growth rate. BCE currently has a PEG ratio of 5.84.
Another notable valuation metric for TEF is its P/B ratio of 0.75. 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, BCE has a P/B of 3.04.
These are just a few of the metrics contributing to TEF's Value grade of A and BCE's Value grade of C.
TEF has seen stronger estimate revision activity and sports more attractive valuation metrics than BCE, so it seems like value investors will conclude that TEF is the superior option right now.
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