Investors with an interest in Media Conglomerates stocks have likely encountered both Pearson (PSO) and Walt Disney (DIS). But which of these two stocks presents investors with the better value opportunity right now? Let’s take a closer look.
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.
Pearson has a Zacks Rank of #2 (Buy), while Walt Disney 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 PSO is likely seeing its earnings outlook improve to a greater extent. But this is only part of the picture 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 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.
PSO currently has a forward P/E ratio of 20.14, while DIS has a forward P/E of 22.61. We also note that PSO has a PEG ratio of 1. 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. DIS currently has a PEG ratio of 1.45.
Another notable valuation metric for PSO is its P/B ratio of 1.49. The P/B is a method of comparing a stock’s market value to its book value, which is defined as total assets minus total liabilities. By comparison, DIS has a P/B of 1.70.
These metrics, and several others, help PSO earn a Value grade of A, while DIS has been given a Value grade of C.
PSO has seen stronger estimate revision activity and sports more attractive valuation metrics than DIS, so it seems like value investors will conclude that PSO is the superior option right now.
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