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 Citizens Financial Group, Inc. (CFG - 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, Citizens Financial has a trailing twelve months PE ratio of 16.97, 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 21.28. While Citizens Financial’s current PE level puts it slightly above its midpoint of 16.04 over the past few years, it stands below the highs for the stock, indicating good scope for entry.
The stock’s PE stands close to the Zacks Finance sector’s trailing twelve months PE ratio, which stands at 16.77. At the very least, this indicates that the stock’s valuation is almost in line with its peers.
We should also point out that Citizens Financial has a forward PE ratio (price relative to this year’s earnings) of just 15.99, so it is fair to say that a slightly more value-oriented path may be ahead for Citizens Financial stock in the near term too.
An often overlooked ratio that can still be a great indicator of value is the price/cash flow metric. This ratio doesn’t take amortization and depreciation into account, so can give a more accurate picture of the financial health in a business. This is a preferred metric to some valuation investors because cash flows are (a) generally less prone to manipulation by the company’s management, and (b) are less affected by variation in accounting policies between different companies.
The ratio is generally applied to find out whether a company’s stock is overpriced or underpriced with reference to its cash flows generation potential compared with its competitors. However, it is not commonly used for cross-industry comparison, as the average price to cash flow ratio varies from industry to industry.
In this case, Citizens Financial’s P/CF ratio of 11.95 is lower than the Zacks Finance-Savings industry average of 13.47, which indicates that the stock is somewhat undervalued in this respect.
Broad Value Outlook
In aggregate, Citizens Financial currently has a Value Score of B, putting it into the top 40% of all stocks we cover from this look. This makes Citizens 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 Citizens Financial is 1.06, a level that is lower than the industry average of 2.00. The PEG ratio is a modified PE ratio that takes into account the stock’s earnings growth rate. Clearly, CFG is a solid choice on the value front from multiple angles.
What About the Stock Overall?
Though Citizens 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 Score of C and a Momentum Score of F. This gives CFG 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 recent earnings estimates have been quite encouraging. The current quarter and full year have seen five and seven estimates go higher in the past sixty days, respectively compared to no downward revisions.
This has had a somewhat positive impact on the consensus estimate, as the full year consensus estimate has risen by nearly 2% in the past two months, while the current quarter estimate has remained unchanged. You can see the consensus estimate trend and recent price action for the stock in the chart below:
This somewhat bullish trend is why the stock has a Zacks Rank #2 (Buy) and why we are looking for outperformance from the company in the near term.
Citizens Financial is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. Further, this Zacks Rank #2 stock belongs to an industry which is ranked among the Top 31% out of more than 250 Zacks industries, which indicates that broader factors are favorable for the company.
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.
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