PB vs. CFR: Which Stock Is the Better Value Option?

Investors interested in Banks - Southwest stocks are likely familiar with Prosperity Bancshares (PB) and Cullen/Frost Bankers (CFR). 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 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.

Currently, Prosperity Bancshares has a Zacks Rank of #2 (Buy), while Cullen/Frost Bankers has a Zacks Rank of #3 (Hold). This means that PB's earnings estimate revision activity has been more impressive, so investors should feel comfortable with its improving analyst outlook. But this is just one factor that value investors are interested in.

Value investors also tend to look at a number of traditional, tried-and-true figures to help them find stocks that they believe are undervalued at their 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.

PB currently has a forward P/E ratio of 11.22, while CFR has a forward P/E of 15.13. We also note that PB has a PEG ratio of 0.79. 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 2.53.

Another notable valuation metric for PB is its P/B ratio of 0.88. 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, CFR has a P/B of 2.29.

Based on these metrics and many more, PB holds a Value grade of B, while CFR has a Value grade of C.

PB 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 PB is likely the superior value option right now.

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

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