ETN vs. AOS: Which Stock Is the Better Value Option?

Investors looking for stocks in the Manufacturing - Electronics sector might want to consider either Eaton (ETN) or A.O. Smith (AOS). 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 emphasizes companies with positive estimate revision trends, and our Style Scores highlight stocks with specific traits.

Currently, Eaton has a Zacks Rank of #2 (Buy), while A.O. Smith 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 ETN has an improving earnings outlook. But this is just one factor that value investors are interested in.

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.

Our Value category highlights undervalued companies by looking at a variety of key metrics, including the popular P/E ratio, as well as the P/S ratio, earnings yield, cash flow per share, and a variety of other fundamentals that have been used by value investors for years.

ETN currently has a forward P/E ratio of 14.81, while AOS has a forward P/E of 23.14. We also note that ETN has a PEG ratio of 1.44. 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. AOS currently has a PEG ratio of 1.91.

Another notable valuation metric for ETN is its P/B ratio of 1.96. 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, AOS has a P/B of 6.70.

These are just a few of the metrics contributing to ETN's Value grade of A and AOS's Value grade of C.

ETN 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 ETN is likely the superior value option right now.

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Eaton Corporation, PLC (ETN) : Free Stock Analysis Report
 
A. O. Smith Corporation (AOS) : Free Stock Analysis Report
 
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