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 - 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:
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 15.48, 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 20.18. If we focus on the long-term PE trend, Heartland Financial’s current PE level puts it above its midpoint of 12.67 over the past five years, with the number having risen rapidly over the past few months.
The stock’s PE comes almost in line with the Zacks classified Finance sector’s trailing twelve months PE ratio, which stands at 15.41. This indicates that the stock is fairly valued right now, compared to its peers.
We should also point out that Heartland Financial’s forward PE is roughly same as its trailing twelve months value, so we might say that the forward earnings estimates are incorporated in the company’s share price as of now. We define forward PE as current price relative to the Zacks Consensus Estimate for the current fiscal year.
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 2.91. This is a bit lower than the S&P 500 average, which comes in at 3.06 right now, which indicates that the stock is slightly undervalued from the P/S aspect.
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 1.60, a level that is slightly 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 7.54, which is far better than the industry average of 13.54. 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 ‘B’. This gives HTLF a Zacks VGM score—or its overarching fundamental grade—of ‘B’. (You can read more about the Zacks Style Scores here >>)
Notably, the company’s recent earnings estimates have been quite encouraging. The current quarter and full year have seen two and three estimates go higher in the past sixty days, respectively. This compares favorably with no downward revisions for both cases.
This has had a positive impact on the consensus estimate, as the current quarter consensus estimate has risen by 1.5% in the past two months, while the full year estimate has increased 1.7%. You can see the consensus estimate trend and recent price action for the stock in the chart below:
This definite bullish trend is why the stock boasts a Zacks Rank #2 (Buy) and why we are looking for out performance from the company in the near term.
Heartland Financial is an inspired choice for value investors, given its impressive lineup of statistics on this front. Along with a solid Zacks Rank, the company flaunts a strong industry rank (Top 20% out of over 250 industries) as well. This indicates that the broader factors are also favorable for the company. In fact, over the past two years, the Zacks classified Banks – Midwest industry has outperformed the broader market, as you can see below:
So, it might pay for value investors to delve deeper into the company’s prospects, as fundamentals indicate that this stock could be a compelling pick.
Zacks' 2017 IPO Watch List
Before looking into the stocks mentioned above, you may want to get a head start on potential tech IPOs that are popping up on Zacks' radar. Imagine being in the first wave of investors to jump on a company with almost unlimited growth potential? This Special Report gives you the current scoop on 5 that may go public at any time.
One has driven from 0 to a $68 billion valuation in 8 years. Four others are a little less obvious but already show jaw-dropping growth. Download this IPO Watch List today for free >>