TEF vs. TU: Which Stock Is the Better Value Option?

Investors looking for stocks in the Diversified Communication Services sector might want to consider either Telefonica (TEF) or Telus (TU). But which of these two stocks presents investors with the better value opportunity right now? Let's take a closer look.

The best way to find great value stocks is to pair a strong Zacks Rank with an impressive grade in the Value category of our Style Scores system. The proven Zacks Rank emphasizes companies with positive estimate revision trends, and our Style Scores highlight stocks with specific traits.

Currently, Telefonica has a Zacks Rank of #2 (Buy), while Telus has a Zacks Rank of #3 (Hold). This means that TEF'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 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.

TEF currently has a forward P/E ratio of 13.80, while TU has a forward P/E of 21.70. We also note that TEF has a PEG ratio of 0.62. 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. TU currently has a PEG ratio of 4.67.

Another notable valuation metric for TEF is its P/B ratio of 1.3. The P/B ratio is used to compare a stock's market value with its book value, which is defined as total assets minus total liabilities. For comparison, TU has a P/B of 2.1.

These metrics, and several others, help TEF earn a Value grade of A, while TU has been given a Value grade of C.

TEF stands above TU thanks to its solid earnings outlook, and based on these valuation figures, we also feel that TEF is the superior value option right now.

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This article originally published on Zacks Investment Research (zacks.com).

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