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 Spectra Energy Partners, LP 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:

PE Ratio

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, Spectra Energy has a trailing twelve months PE ratio of 13.17, 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 compares in at about 20.06. If we focus on the stock’s long-term PE trend, the current level puts Spectra Energy’s current PE ratio is below its midpoint over the past five years.



Further, the stock’s PE also compares favorably with the Zacks classified Oil and Gas - Production Pipeline - MLB industry’s trailing twelve months PE ratio, which stands at 25.25. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.



We should also point out that Spectra Energy has a forward PE ratio (price relative to this year’s earnings) of just 13.27, which is roughly in line with the current level. Hence the forward earnings estimates are already incorporated in the company’s current share price.

P/CF Ratio

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, Spectra Energy’s P/CF ratio of 9.15 is lower than the Zacks classified Oil and Gas - Production Pipeline - MLB industry average of 12.04, which further supports the stock’s undervaluation in comparison to its peers.



Broad Value Outlook

In aggregate, Spectra Energy 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 Spectra Energy a good choice for value investors, and some of its other key metrics make this pretty clear too.

For example, the PEG ratio for Spectra Energy is just 1.90, a level that is pretty lower than the industry average of 2.84. The PEG ratio is a modified PE ratio that takes into account the stock’s earnings growth rate. Clearly, SEP is a solid choice on the value front from multiple angles.

What About the Stock Overall?

Though Spectra Energy 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 ‘F’. This gives SEP a Zacks VGM score—or its overarching fundamental grade—of‘F’. (You can read more about the Zacks Style Scores here >>)

Meanwhile, the company’s recent earnings estimates have been discouraging.  The current quarter has seen one estimate going higher in the last 60 days compared to three lower. The full year estimate has seen two upward and four downward revision over the same time frame.

The net effect is reflected by the consensus estimate, which, for the current quarter has fallen by 5.8% in the past two months, while for the full year, has decreased by 3.8%. You can see the consensus estimate trend and recent price action for the stock in the chart below:

Spectra Energy Partners, LP Price and Consensus

This negative trend is why the stock has just a Zacks Rank #3 (Hold) despite strong value metrics and why we are looking for in-line performance from the company in the near term.

Bottom Line

Spectra Energy is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. Moreover, a good industry rank (Top 40% out of more than 250 industries) further supports the growth potential of the stock. In fact, over the past one year, the Zacks Oil and Gas - Production Pipeline - MLB  industry has clearly outperformed the broader market, as you can see below:



However, with a Zacks Rank #3, it is hard to get too excited about this company overall. So, value investors might want to wait for analyst sentiment and estimates to turn around in this name first, but once that happens, this stock could be a compelling pick.

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