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Investors interested in stocks from the Banks - Southwest sector have probably already heard of First Horizon National (FHN) and Cullen/Frost Bankers (CFR). But which of these two companies is the best option for those looking for undervalued stocks? Let's take a closer look.
Everyone has their own methods for finding great value opportunities, but our model includes pairing an impressive grade in the Value category of our Style Scores system with a strong Zacks Rank. The Zacks Rank is a proven strategy that targets companies with positive earnings estimate revision trends, while our Style Scores work to grade companies based on specific traits.
Right now, both First Horizon National and Cullen/Frost Bankers are sporting a Zacks Rank of # 2 (Buy). This means that both companies have witnessed positive earnings estimate revisions, so investors should feel comfortable knowing that both of these stocks have an improving earnings outlook. But this is just one piece of the puzzle for value investors.
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.
Our Value category grades stocks based on a number of key metrics, including the tried-and-true P/E ratio, the P/S ratio, earnings yield, and cash flow per share, as well as a variety of other fundamentals that value investors frequently use.
FHN currently has a forward P/E ratio of 11.84, while CFR has a forward P/E of 14.14. We also note that FHN has a PEG ratio of 1.09. 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 5.68.
Another notable valuation metric for FHN is its P/B ratio of 1.21. 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, CFR has a P/B of 2.15.
These metrics, and several others, help FHN earn a Value grade of B, while CFR has been given a Value grade of F.
Both FHN and CFR are impressive stocks with solid earnings outlooks, but based on these valuation figures, we feel that FHN is the superior value option right now.
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First Horizon Corporation (FHN) : Free Stock Analysis Report
Cullen/Frost Bankers, Inc. (CFR) : Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).