Investors looking for stocks in the Beverages - Soft drinks sector might want to consider either Coca-Cola (NYSE:KO) FEMSA (KOF) or PepsiCo (NASDAQ:PEP). 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 Zacks Rank favors stocks with strong earnings estimate revision trends, and our Style Scores highlight companies with specific traits.
Coca-Cola FEMSA and PepsiCo are sporting Zacks Ranks of #2 (Buy) and #3 (Hold), respectively, right now. Investors should feel comfortable knowing that KOF likely has seen a stronger improvement to its earnings outlook than PEP has recently. But this is only part of the picture for value investors.
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 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.
KOF currently has a forward P/E ratio of 17.38, while PEP has a forward P/E of 24.90. We also note that KOF has a PEG ratio of 1.90. 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. PEP currently has a PEG ratio of 3.94.
Another notable valuation metric for KOF is its P/B ratio of 2.06. 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, PEP has a P/B of 14.41.
Based on these metrics and many more, KOF holds a Value grade of A, while PEP has a Value grade of C.
KOF sticks out from PEP in both our Zacks Rank and Style Scores models, so value investors will likely feel that KOF is the better option right now.
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Zacks Investment Research