Investors looking for stocks in the Banks – Southwest sector might want to consider either First Horizon National (FHN – Free Report) or Cullen/Frost Bankers (CFR – Free Report) . But which of these two stocks is more attractive to value investors? We’ll need to take a closer look to find out.
There are plenty of strategies for discovering value stocks, but we have found that pairing a strong Zacks Rank with an impressive grade in the Value category of our Style Scores system produces the best returns. The proven Zacks Rank puts an emphasis on earnings estimates and estimate revisions, while our Style Scores work to identify stocks with specific traits.
Right now, First Horizon National is sporting a Zacks Rank of #2 (Buy), while Cullen/Frost Bankers has a Zacks Rank of #3 (Hold). The Zacks Rank favors stocks that have recently seen positive revisions to their earnings estimates, so investors should rest assured that FHN has an improving earnings outlook. However, value investors will care about much more than just this.
Value investors are also interested in a number of tried-and-true valuation metrics that help show when 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.
FHN currently has a forward P/E ratio of 13.46, while CFR has a forward P/E of 15.34. We also note that FHN has a PEG ratio of 1.50. 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. CFR currently has a PEG ratio of 1.61.
Another notable valuation metric for FHN is its P/B ratio of 1.21. 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, CFR has a P/B of 2.16.
Based on these metrics and many more, FHN holds a Value grade of A, while CFR has a Value grade of D.
FHN is currently sporting an improving earnings outlook, which makes it stick out in our Zacks Rank model. And, based on the above valuation metrics, we feel that FHN is likely the superior value option right now.
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