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Image: Bigstock featured highlights include Unum Group, Sanofi, KB Home, PVH and Telefonica Brasil

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For Immediate Release

Chicago, IL – April 19, 2023 – Stocks in this week’s article are Unum Group (UNM - Free Report) , Sanofi (SNY - Free Report) , KB Home (KBH - Free Report) , PVH Corp. (PVH - Free Report) and Telefonica Brasil S.A. (VIV - Free Report) .

Pick These 5 Bargain Stocks with Amazingly Low EV/EBITDA Ratios

Investors typically have a fixation on the price-to-earnings (P/E) strategy while seeking stocks trading at attractive prices. This straight-forward, easy-to-calculate ratio is the most preferred among all the valuation metrics in the investment toolkit for working out the fair market value of a stock. But even this ubiquitously used valuation metric is not without its pitfalls.

While P/E is the most popular valuation metric, a more complicated multiple called EV-to-EBITDA works even better. Often considered a better alternative to P/E, it gives the true picture of a company's valuation and earnings potential, and has a more complete approach to valuation. While P/E considers a firm's equity portion, EV-to-EBITDA determines its total value.

Unum Group, Sanofi, KB Home,PVH Corp. and Telefonica Brasil S.A. are some stocks with attractive EV-to-EBITDA ratios.

Is EV-to-EBITDA a Better Substitute to P/E?

Also referred to as enterprise multiple, EV-to-EBITDA is the enterprise value (EV) of a stock divided by its earnings before interest, taxes, depreciation and amortization (EBITDA). EV is the sum of a company's market capitalization, its debt and preferred stock minus cash and cash equivalents. In essence, it is the entire value of a company.

EBITDA, the other element of the ratio, gives a clearer picture of a company's profitability as it strips out non-cash expenses like depreciation and amortization that reduce net earnings. It is also often used as a proxy for cash flows.

Just like P/E, the lower the EV-to-EBITDA ratio, the more attractive it is. A low EV-to-EBITDA ratio could signal that a stock is potentially undervalued.  

Unlike P/E ratio, EV-to-EBITDA takes debt on a company's balance sheet into account. Due to this reason, EV-to-EBITDA is generally used to value potential acquisition targets as it shows the amount of debt the acquirer has to assume. Stocks flaunting a low EV-to-EBITDA multiple could be seen as attractive takeover candidates.

Another shortcoming of P/E is that it can't be used to value a loss-making firm. A company's earnings are also subject to accounting estimates and management manipulation. On the other hand, EV-to-EBITDA is difficult to manipulate and can also be used to value companies making losses but are EBITDA positive.

EV-to-EBITDA is also a useful yardstick in evaluating the value of firms that are highly leveraged and have a high degree of depreciation. Moreover, it can be used to compare companies with different levels of debt.

However, EV-to-EBITDA is also not without its limitations and alone cannot conclusively determine a stock's inherent potential and future performance. The ratio varies across industries and is generally not appropriate while comparing stocks in different industries, given their diverse capital spending requirements.

Hence, a strategy entirely based on EV-to-EBITDA might not yield the desired results. But you can club it with other major ratios such as price-to-book (P/B), P/E and price-to-sales (P/S) to screen bargain stocks.

Here are our five picks out of the eight stocks that passed the screen:

Unum Group provides long-term care insurance, life insurance, employer- and employee-paid group benefits and related services. This Zacks Rank #1 stock has a Value Score of A.

Unum Group has an expected year-over-year earnings growth rate of 8.2% for the current year. The Zacks Consensus Estimate for UNM's current-year earnings has been revised 4.7% upward over the last 60 days.

Sanofi manufactures and markets prescription drugs in Europe, the United States and other countries. SNY, a Zacks Rank #2 stock, has a Value Score of A. You can see the complete list of today's Zacks #1 Rank stocks here.

Sanofi has an expected year-over-year earnings growth rate of 1.4% for the current year. The Zacks Consensus Estimate for SNY's current-year earnings has been revised 0.2% upward over the last 60 days.

KB Home is one of the largest and most recognized homebuilders in the United States. This Zacks Rank #2 stock has a Value Score of A.

The Zacks Consensus Estimate for KB Home's current fiscal year earnings has been revised 29.5% upward over the last 60 days. KBH's earnings beat the Zacks Consensus Estimate in three of the last four quarters. It has a trailing four-quarter earnings surprise of roughly 12.2%, on average.

PVH specializes in designing and marketing branded dress shirts, neckwear, sportswear, jeanswear, intimate apparel, swim products, footwear, handbags and related products. This Zacks Rank #2 stock has a Value Score of A.

PVH has an expected year-over-year earnings growth rate of 11.8% for the current year. The Zacks Consensus Estimate for PVH's current fiscal-year earnings has been revised 13.6% upward over the past 60 days.

Telefonica Brasil is engaged in providing communication, information and entertainment solutions in the telecommunication sector. This Zacks Rank #2 stock has a Value Score of B.

Telefonica Brasil has an expected year-over-year earnings growth rate of 10.6% for the current year. The Zacks Consensus Estimate for VIV's current-year earnings has been revised 8.3% upward over the past 60 days.

You can get the rest of the stocks on this list by signing up now for your 2-week free trial to the Research Wizard and start using this screen in your own trading. Further, you can also create your own strategies and test them first before taking the investment plunge.

The Research Wizard is a great place to begin. It's easy to use. Everything is in plain language. And it's very intuitive. Start your Research Wizard trial today. And the next time you read an economic report, open up the Research Wizard, plug your finds in, and see what gems come out.

Click here to sign up for a free trial to the Research Wizard today.

For the rest of this Screen of the Week article please visit at:

Disclosure: Officers, directors and/or employees of Zacks Investment Research may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material. An affiliated investment advisory firm may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material.

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