Value investing is easily one of the most popular ways to find great stocks in any market environment. After all, who wouldn’t want to find stocks that are either flying under the radar and are compelling buys, or offer up tantalizing discounts when compared to fair value?
One way to find these companies is by looking at several key metrics and financial ratios, many of which are crucial in the value stock selection process. Let’s put Huntington Bancshares Incorporated HBAN stock into this equation and find out if it is a good choice for value-oriented investors right now, or if investors subscribing to this methodology should look elsewhere for top picks:
A key metric that value investors always look at is the Price to Earnings Ratio, or PE for short. This shows us how much investors are willing to pay for each dollar of earnings in a given stock, and is easily one of the most popular financial ratios in the world. The best use of the PE ratio is to compare the stock’s current PE ratio with: a) where this ratio has been in the past; b) how it compares to the average for the industry/sector; and c) how it compares to the market as a whole.
On this front, Huntington Bancshares has a trailing twelve months PE ratio of 15.81, as you can see in the chart below:
This level actually compares pretty favorably with the market at large, as the PE for the S&P 500 stands at about 19.86. If we focus on the long-term PE trend, Huntington Bancshares’ current PE level puts it above its midpoint and near the highs over the past five years, with the number having risen rapidly over the past few months.
Further, the stock’s PE also compares favorably with the Zacks classified Finance sector’s trailing twelve months PE ratio, which stands at 16.10. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.
We should also point out that Huntington Bancshares has a forward PE ratio (price relative to this year’s earnings) of just 13.91, so it is fair to say that a slightly more value-oriented path may be ahead for Huntington Bancshares stock in the near term too.
An often overlooked ratio that can still be a great indicator of value is the price/cash flow metric. This ratio doesn’t take amortization and depreciation into account, so can give a more accurate picture of the financial health in a business. This is a preferred metric to some valuation investors because cash flows are (a) generally less prone to manipulation by the company’s management and (b) are less affected by variation in accounting policies between different companies.
The ratio is generally applied to find out whether a company’s stock is overpriced or underpriced with reference to its cash flows generation potential compared with its competitors. However, it is not commonly used for cross-industry comparison, as the average price to cash flow ratio varies from industry to industry.
In this case, Huntington Bancshares’ P/CF ratio of 10.40 is lower than the Zacks classified Banks – Midwest industry average of 24.38, which indicates that the stock is largely undervalued in this respect.
Broad Value Outlook
In aggregate, Huntington Bancshares currently has a Zacks Value Style Score of ‘B’, putting it into the top 40% of all stocks we cover from this look. This makes Huntington Bancshares a decent choice for value investors, and some of its other key metrics make this pretty clear too.
For example, the PEG ratio for Huntington Bancshares is just 1.29, a level that is lower than the industry average of 1.85. The PEG ratio is a modified PE ratio that takes into account the stock’s earnings growth rate. Additionally, its P/S ratio (another great indicator of value) comes in at 3.40, which is better than the industry average of 3.85. Clearly, HBAN is a solid choice on the value front from multiple angles.
What About the Stock Overall?
Though Huntington Bancshares might be a good choice for value investors, there are plenty of other factors to consider before investing in this name. In particular, it is worth noting that the company has a Growth grade of ‘F’ and a Momentum score of ‘B’. This gives HBAN a Zacks VGM score—or its overarching fundamental grade—of ‘C’. (You can read more about the Zacks Style Scores here >>)
Meanwhile, the company’s recent earnings estimates have been somewhat mixed. The current quarter has seen one estimate go higher in the past sixty days compared to two lower, while the full year estimate has seen two upward and two downward revisions each, in the same time period.
This has had a small impact on the consensus estimate, as the current quarter consensus estimate has remained flat in the past two months, while the full year estimate has climbed by 1.2%. You can see the consensus estimate trend and recent price action for the stock in the chart below:
This somewhat favorable trend is why the stock has just a Zacks Rank #2 (Buy) and why we are looking for better performance from the company in the near term.
Huntington Bancshares is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. Boasting a good industry rank (Top 3% out of over 250 industries) and a solid Zacks Rank, the company deserves attention right now. Moreover, over the past two years, the Zacks Banks – Midwest industry has clearly outperformed the broader market, as you can see below:
So, it might pay for value investors to delve deeper into the company’s prospects, as fundamentals indicate that this stock could be a compelling pick.
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