Back to top

Press Releases

Zacks Equity Research

Zacks.com featured highlights: Teradyne, Lam Research, Regions Financial, Cosan and Preferred Apartment Communities

TER LRCX RF CZZ APTS

Trades from $3

For Immediate Release

Chicago, IL – November 22, 2016 - Stocks in this week’s article include Teradyne Inc. (NYSE:(TER - Free Report) -Free Report), Lam Research Corporation (Nasdaq:(LRCX - Free Report) -Free Report), Regions Financial Corporation (NYSE:(RF - Free Report) -Free Report), Cosan Limited (NYSE:(CZZ - Free Report) -Free Report) and Preferred Apartment Communities, Inc. (NYSE:(APTS - Free Report) - Free Report).

Screen of the Week of Zacks Investment Research:

5 Value Stocks with Exciting EV/EBITDA Ratios to Buy Now

The price-to-earnings (P/E) multiple enjoys wide-scale popularity among investors seeking stocks that are trading at attractive prices. In addition to being a widely-used tool for screening stocks, P/E is also a popular metric to work out the fair market value of a firm. However, even this ubiquitously used valuation multiple has a few downsides.

Why EV/EBITDA is a Better Option?

While P/E is undoubtedly the most commonly used equity valuation ratio in the market, a more complicated valuation metric called EV/EBITDA works even better. Often viewed as a better alternative to P/E, EV/EBITDA offers a clearer picture of a company’s valuation and earnings potential.

EV/EBITDA is essentially 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. Basically, it is the full value of a company.

EBITDA, the other component of the multiple, is a true reflection 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.

Typically, the lower the EV/EBITDA ratio, the more appealing it is. A low EV/EBITDA ratio could imply that a stock is potentially undervalued and vice versa.

EV/EBITDA, also dubbed as the enterprise multiple, takes a more comprehensive approach to valuation. While P/E just considers a firm’s equity portion, EV/EBITDA determines its total value. EV/EBITDA takes into account the debt on a company’s balance sheet that P/E ratio does not. For this reason, EV/EBITDA is usually used to value possible acquisition targets, as it shows the amount of debt the acquirer has to assume. Stocks boasting a low EV/EBITDA multiple could be seen as attractive takeover candidates.

Another major downside of P/E is that it can’t be used to value a loss-making entity. A firm’s earnings are also subject to accounting estimates and management manipulation. In comparison, EV/EBITDA is harder to manipulate and can also be used to value firms that have negative net earnings but are positive at the EBITDA level.

EV/EBITDA is also a useful tool in measuring the value of companies with a debt-laden balance sheet and substantial depreciation and amortization expenses. Moreover, the ratio allows the comparison of companies with different debt levels.

But EV/EBITDA is not without its limitations and it alone can’t conclusively determine a stock’s inherent potential and future performance. The multiple varies across industries and is usually not appropriate while comparing stocks in different industries given their diverse capital requirements.

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

Screening Criteria

Here are the parameters to screen for value stocks:

EV/EBITDA 12 Months-Most Recent less than X-Industry Median: A lower EV/EBITDA ratio represents a cheaper valuation.

P/E using (F1) less than X-Industry Median: This metric screens stocks that are trading at a discount to their peers.

P/B less than X-Industry Median: A lower P/B compared with the industry average implies that the stock is undervalued.

P/S less than X-Industry Median: The lower the P/S ratio the more attractive the stock is as investors will have to pay a smaller price for the same amount of sales generated by the company.

Estimated One-Year EPS Growth F(1)/F(0) greater than or equal to X-Industry Median: This parameter will help in screening stocks that have growth rates higher than the industry median. This is a meaningful indicator as decent earnings growth always adds to investor optimism.

Average 20-day Volume greater than or equal to 100,000: The addition of this metric ensures that shares can be traded easily.

Current Price greater than or equal to $5: This parameter will help in screening stocks that are trading at a minimum price of $5 or higher.

Zacks Rank less than or equal to 2: No screening is complete without the Zacks Rank, which has proven its worth since inception. It is a fundamental truth that stocks with a Zacks Rank #1 (Strong Buy) or 2 (Buy) have always managed to beat adversities and outperform the market.

Value Score of less than or equal to B: Our research shows that stocks with a Style Score of ‘A’ or ‘B’ when combined with a Zacks Rank #1 or 2 offer the best upside potential.

Here are five of the 12 stocks that passed the screen:

Teradyne Inc. (NYSE:(TER - Free Report) - Free Report) is a manufacturer of automatic test equipment and related software for the electronics and communications industries. This Zacks Rank #1 stock has an expected EPS growth rate of 12.4% for 3 to 5 years.

Lam Research Corporation (Nasdaq:(LRCX - Free Report) - Free Report) designs, manufactures, markets and services semiconductor processing equipment used in the fabrication of integrated circuits. This Zacks Rank #1 stock has expected year-over-year earnings growth of 20.5% for 2016.

Regions Financial Corporation (NYSE:(RF - Free Report) - Free Report) is a regional bank holding company and has banking-related subsidiaries engaged in mortgage banking, credit life insurance, leasing, and securities brokerage activities with offices in various Southeastern states. This Zacks Rank #2 company delivered an average positive earnings surprise of around 7.5% over the trailing four quarters. You can see the complete list of today’s Zacks #1 Rank stocks here .

Cosan Limited (NYSE:(CZZ - Free Report) - Free Report) is the leading global ethanol and sugar company in terms of production with low-cost, large-scale and integrated operations in Brazil. This Zacks Rank #2 stock has an expected EPS growth rate of 15.7% for 3 to 5 years.

Preferred Apartment Communities, Inc. (NYSE:(APTS - Free Report) - Free Report) is a real estate investment trust that acquires and operates multifamily properties primarily in the U.S. This Zacks Rank #2 stock has expected year-over-year earnings growth of 12.1% for 2016 and 9.2% for 2017.

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 .

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.

Disclosure: Performance information for Zacks’ portfolios and strategies are available at: https://www.zacks.com/performance .

Zacks Restaurant Recommendations: In addition to dining at these special places, you can feast on their stock shares. A Zacks Special Report spotlights 5 recent IPOs to watch plus 2 stocks that offer immediate promise in a booming sector. Download it free »

Sign up now for your free trial today and start picking better stocks immediately. And with the backtesting feature, you can test your ideas to see how you can improve your trading in both up markets and down markets. Don’t wait for the market to get better before you decide to do better. Start learning how to be a better trader today: https://at.zacks.com/?id=111

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.

About Screen of the Week

Zacks.com created the first and best screening system on the web earning the distinction as the "#1 site for screening stocks" by Money Magazine. But powerful screening tools is just the start. That is why Zacks created the Screen of the Week to highlight profitable stock picking strategies that investors can actively use. Each week, Zacks Profit from the Pros free email newsletter shares a new screening strategy. Learn more about it here https://at.zacks.com/?id=112

About Zacks

Zacks.com is a property of Zacks Investment Research, Inc., which was formed in 1978. The later formation of the Zacks Rank, a proprietary stock picking system; continues to outperform the market by nearly a 3 to 1 margin. The best way to unlock the profitable stock recommendations and market insights of Zacks Investment Research is through our free daily email newsletter; Profit from the Pros. In short, it's your steady flow of Profitable ideas GUARANTEED to be worth your time! Click here for your free subscription to Profit from the Pros.

Get the full Report on TER - FREE

Get the full Report on LRCX - FREE

Get the full Report on RF - FREE

Get the full Report on CZZ - FREE

Get the full Report on APTS - FREE

Follow us on Twitter: https://twitter.com/zacksresearch

Join us on Facebook: https://www.facebook.com/ZacksInvestmentResearch

Zacks Investment Research is under common control with affiliated entities (including a broker-dealer and an investment adviser), which may engage in transactions involving the foregoing securities for the clients of such affiliates.

Contact: Jim Giaquinto
Company: Zacks.com
Phone: 312-265-9268
Email: pr@zacks.com

Visit: https://www.zacks.com/performance

Zacks.com provides investment resources and informs you of these resources, which you may choose to use in making your own investment decisions. Zacks is providing information on this resource to you subject to the Zacks "Terms and Conditions of Service" disclaimer. www.zacks.com/disclaimer .

Past performance is no guarantee of future results. Inherent in any investment is the potential for loss.

This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.