Investors with an interest in Communication – Infrastructure stocks have likely encountered both Adtran (ADTN) and Zayo Group (ZAYO). 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.
Adtran and Zayo Group are sporting Zacks Ranks of #2 (Buy) and #3 (Hold), respectively, right now. This means that ADTN’s earnings estimate revision activity has been more impressive, so investors should feel comfortable with its improving analyst outlook. But this is just one piece of the puzzle for value investors.
Value investors also try to analyze a wide range of traditional figures and metrics to help determine whether a company is undervalued at its current share price levels.
The Style Score Value grade factors in a variety of key fundamental metrics, including the popular P/E ratio, P/S ratio, earnings yield, cash flow per share, and a number of other key stats that are commonly used by value investors.
ADTN currently has a forward P/E ratio of 39.42, while ZAYO has a forward P/E of 45.50. We also note that ADTN has a PEG ratio of 7.88. 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. ZAYO currently has a PEG ratio of 11.19.
Another notable valuation metric for ADTN is its P/B ratio of 1.21. The P/B ratio pits a stock’s market value against its book value, which is defined as total assets minus total liabilities. For comparison, ZAYO has a P/B of 5.94.
Based on these metrics and many more, ADTN holds a Value grade of B, while ZAYO has a Value grade of D.
ADTN has seen stronger estimate revision activity and sports more attractive valuation metrics than ZAYO, so it seems like value investors will conclude that ADTN is the superior option right now.
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