Investors interested in stocks from the Medical - Dental Supplies sector have probably already heard of McKesson (MCK) and Cooper Cos. (COO). But which of these two companies is the best option for those looking for undervalued stocks? Let's take a closer look.
Everyone has their own methods for finding great value opportunities, but our model includes pairing an impressive grade in the Value category of our Style Scores system with a strong Zacks Rank. The proven Zacks Rank emphasizes companies with positive estimate revision trends, and our Style Scores highlight stocks with specific traits.
McKesson and Cooper Cos. are both sporting a Zacks Rank of # 2 (Buy) right now. This system places an emphasis on companies that have seen positive earnings estimate revisions, so investors should feel comfortable knowing that these stocks have improving earnings outlooks. But this is just one piece of the puzzle for value investors.
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.
MCK currently has a forward P/E ratio of 9.80, while COO has a forward P/E of 27.14. We also note that MCK has a PEG ratio of 1.46. 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. COO currently has a PEG ratio of 2.52.
Another notable valuation metric for MCK is its P/B ratio of 3.21. 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, COO has a P/B of 4.65.
These are just a few of the metrics contributing to MCK's Value grade of A and COO's Value grade of C.
Both MCK and COO are impressive stocks with solid earnings outlooks, but based on these valuation figures, we feel that MCK is the superior value option right now.
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McKesson Corporation (MCK) : Free Stock Analysis Report
The Cooper Companies, Inc. (COO) : Free Stock Analysis Report
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