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 Heartland Financial USA, Inc. (HTLF Quick QuoteHTLF - 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, Heartland Financial has a trailing twelve months PE ratio of 14.27, 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 20.10. While Heartland Financial’s current PE level puts it above its midpoint of 12.59 over the past five years, the current level stands below the highs for the stock, as is evident from the chart below.



Further, the stock’s PE also compares favorably with the Zacks classified Finance sector’s trailing twelve months PE ratio, which stands at 16.37. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.



We should also point out that Heartland Financial has a forward PE ratio (price relative to this year’s earnings) of 15.66, so it is fair to expect an increase in the company’s share price in the near future.

P/S Ratio

Another key metric to note is the Price/Sales ratio. This approach compares a given stock’s price to its total sales, where a lower reading is generally considered better. Some people like this metric more than other value-focused ones because it looks at sales, something that is far harder to manipulate with accounting tricks than earnings.

Right now, Heartland Financial has a P/S ratio of about 2.69. This is a bit lower than the S&P 500 average, which comes in at 3.01 right now. This is reflected well in the chart below.



Broad Value Outlook

In aggregate, Heartland Financial 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 Heartland Financial a solid choice for value investors, and some of its other key metrics make this pretty clear too.

For example, the PEG ratio for Heartland Financial is just 1.57, a level that is little lower than the industry average of 1.91. The PEG ratio is a modified PE ratio that takes into account the stock’s earnings growth rate. Additionally, its P/CF ratio (another great indicator of value) comes in at 8.71, which is far better than the industry average of 15.30. Clearly, HTLF is a solid choice on the value front from multiple angles.

What About the Stock Overall?

Though Heartland Financial 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 ‘D’ and a Momentum score of ‘F’. This gives HTF 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 mixed at best. The current quarter has seen one estimates go higher in the past sixty days compared to two lower, while the full year estimate has seen two up and one down in the same time period.

This has had just a negative impact on the consensus estimate, as the current quarter consensus estimate has slipped by 4.2% in the past two months, while the full year estimate has inched lower by 2.3%. You can see the consensus estimate trend and recent price action for the stock in the chart below:

Nonetheless, the stock has a long term expected earnings growth of 10% and sports a Zacks Rank #2 (Buy). This indicates that though analysts have some apprehensions about the stock in the immediate future, the stock’s long-term growth story is intact. This is why we are looking for outperformance from the company in future.

Bottom Line

All said, Heartland Financial is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. Also, the stock flaunts a solid Industry Rank (Top 5% out of over 250 industries), thus hinting at favorable broader factors. Incidentally, over the past two years, the Zacks classified Banks – Midwest industry has clearly crushed the broader market, as you can see below:



So, value investors might want to wait for estimates and analyst sentiment to turn around in this name first, but once that happens, this stock could be a compelling pick.

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