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 Entergy Corporation (ETR - 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, Entergy has a trailing twelve months PE ratio of 11.53. This level compares considerably favorably with the market at large, as the PE ratio for the S&P 500 comes in at about 20.13.
If we focus on the long-term trend of the stock the current level puts Entergy’s current PE near its median (which stands at 11.46) over the observed period. Notably, the current level is much below the highs experienced for the stock over the period, suggesting some level of undervalued trading in light of its own historical trend.
Further, the stock’s PE also compares favorably with the Zacks classified Utility – Electric Power industry’s trailing twelve months PE ratio, which stands at 17.06. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.
We should also point out that Entergy has a forward PE ratio (price relative to this year’s earnings) of just 10.94 – that is lower than the current level. So, it is fair to say that a slightly more value-oriented path may be ahead for Entergy stock in the near term too.
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, Entergy has a P/S ratio of about 1.27. This is lower than the Zacks categorized Utility – Electric Power industry average, which comes in at 1.40 right now. Notably, the stock has always traded below the industry average P/S level, over the observed period.
ETR is actually in the higher zone of its trading range in the time period per the P/S metric, which suggests that the company’s stock price has already appreciated to some degree, relative to its sales.
Broad Value Outlook
In aggregate, Entergy 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 Entergy an apt choice for value investors, and some of its other key metrics make this pretty clear too.
For example, its P/B ratio (used to compare a stock's market value to its book value) stands at 1.65, lower than the industry average of 1.74. Additionally, its P/CF ratio (another great indicator of value) comes in at 6.02, which is far better than the industry average of 8.37. Clearly, ETR is a solid choice on the value front from multiple angles.
What About the Stock Overall?
Though Entergy 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 ‘A’. This gives ETR a Zacks VGM score—or its overarching fundamental grade—of ‘C’. (You can read more about the Zacks Style Scores here >>)
Meanwhile, the company’s earnings estimates have been trending upwards lately. The current quarter has seen two estimates go higher in the past thirty days compared to one lower, while the full year estimate has seen one upward revision and no downward revisions in the same time period.
This has had a meaningful impact on the consensus estimate as the current quarter consensus estimate has remained constant over the past month, while the full year estimate has jumped up 44%. You can see the consensus estimate trend and recent price action for the stock in the chart below:
Entergy Corporation Price and Consensus
The stock has a Zacks Rank #3 (Hold), which indicates expectations of in-line performance from the company in the near term. However, Entergy is enjoying bullish analyst sentiment, as indicated by the positive estimate revisions, and this works in the company’s favor.
Entergy 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 42% out of 265 industries) further supports the growth potential of the stock.
Entergy is gradually shifting from a hybrid model to a pure-play utility, which is expected to drive growth. Going forward, the company plans to make investments for the modernization of grid with evolving customer demand. Also, the company maintains a stable liquidity position that enables it to make notable investment plans. Moreover, to pursue growth opportunities in the generation business, the company has a strong project pipeline.
However, Entergy's low interest rate phase prevailing over the past few years have affected the company’s pension and post-retirement benefit expenses. Again, any adverse decision in pending regulatory cases can materially impact its earnings. Moreover, price fluctuations in wholesale power markets could be a growth deterrent.
Nevertheless, despite a Zacks Rank #3, we believe that positive estimate revisions and robust value metrics make this stock a compelling pick.
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