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 Cullen/Frost Bankers, Inc. (CFR Quick QuoteCFR - Free Report) 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, Cullen/Frost Bankers has a trailing twelve months PE ratio of 18.68, 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 20.24. If we focus on the stock’s long-term PE trend, the current level puts Cullen/Frost Bankers’ current PE ratio above its midpoint over the past five years.

However, the stock’s PE does not compare favorably with the Zacks classified Banks & Thrifts industry’s trailing twelve months PE ratio, which stands slightly lower at 18.31, indicating somewhat overvalued trading right now, compared to its peers.

We should also point out that Cullen/Frost Bankers has a forward PE ratio (price relative to this year’s earnings) of just 17.28, 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, Cullen/Frost Bankers’s P/CF ratio of 13.01 is significantly lower than the Zacks classified Banks & Thrifts industry’s average of 18.88, which indicates that the stock is undervalued in this respect.

Broad Value Outlook

In aggregate, Cullen/Frost Bankers 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 Cullen/Frost Bankers a solid choice for value investors, and some of its other key metrics make this pretty clear too.

For example, the PEG ratio for Cullen/Frost Bankers is just 1.82, a bit lower than the industry average of 1.87. The PEG ratio is a modified PE ratio that takes into account the stock’s earnings growth rate. Clearly, CFR is a solid choice on the value front from multiple angles.

What About the Stock Overall?

Though Cullen/Frost Bankers 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 ‘C’. This gives CFR a Zacks VGM score—or its overarching fundamental grade—of ‘D’. (You can read more about the Zacks Style Scores here >>)

Meanwhile, the company’s recent earnings estimates have been pretty encouraging. The current quarter has seen five estimates go higher in the past sixty days compared to none lower, while the full year estimate has seen four upward and no downward movement in the same time period.

This has had a significant impact on the consensus estimate though as the current quarter consensus estimate has risen by 1.7% in the past two months, and the full year estimate has gone up by 1%. You can see the consensus estimate trend and recent price action for the stock in the chart below:

Despite having a bullish trend, HCA sports a Zacks Rank #3 (Hold). This indicates that analysts have some apprehensions about the stock in the immediate future. Thus, we are looking for in-line performance from the company in the near term.

Bottom Line

Cullen/Frost Bankers is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. Moreover, a strong industry rank (Top 31% out of more than 250 industries) further bolsters its future growth potential. In fact, over the past two years, the Zacks Banks & Thrifts industry has clearly outperformed the broader market, as you can see below:

So, despite a Zacks Rank #3, we believe that bullish analyst sentiment and favorable industry factors make this value stock a compelling pick.

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