Investors interested in stocks from the Banks - Southeast sector have probably already heard of Iberiabank (IBKC - Free Report) and City Holding (CHCO - Free Report) . But which of these two companies is the best option for those looking for undervalued stocks? Let's take a closer look.
There are plenty of strategies for discovering value stocks, but we have found that pairing a strong Zacks Rank with an impressive grade in the Value category of our Style Scores system produces the best returns. The proven Zacks Rank puts an emphasis on earnings estimates and estimate revisions, while our Style Scores work to identify stocks with specific traits.
Currently, Iberiabank has a Zacks Rank of #2 (Buy), while City Holding has a Zacks Rank of #3 (Hold). This system places an emphasis on companies that have seen positive earnings estimate revisions, so investors should feel comfortable knowing that IBKC is likely seeing its earnings outlook improve to a greater extent. But this is only part of the picture for value investors.
Value investors are also interested in a number of tried-and-true valuation metrics that help show when a company is undervalued at its current share price levels.
The Value category of the Style Scores system identifies undervalued companies by looking at a number of key metrics. These include the long-favored P/E ratio, P/S ratio, earnings yield, cash flow per share, and a variety of other fundamentals that help us determine a company's fair value.
IBKC currently has a forward P/E ratio of 11.62, while CHCO has a forward P/E of 15.16. We also note that IBKC has a PEG ratio of 1.45. This figure is similar to the commonly-used P/E ratio, with the PEG ratio also factoring in a company's expected earnings growth rate. CHCO currently has a PEG ratio of 1.90.
Another notable valuation metric for IBKC is its P/B ratio of 1.15. The P/B is a method of comparing a stock's market value to its book value, which is defined as total assets minus total liabilities. By comparison, CHCO has a P/B of 2.28.
These metrics, and several others, help IBKC earn a Value grade of B, while CHCO has been given a Value grade of C.
IBKC stands above CHCO thanks to its solid earnings outlook, and based on these valuation figures, we also feel that IBKC is the superior value option right now.