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Alberto Abaterusso
Alberto Abaterusso
Articles (2474) 

3 Stocks Trading Below the Earnings Power Value

They could be priced reasonably

October 14, 2020 | About:

When in search of stocks that could be priced reasonably, one tool that investors can use is the Earnings Power Value (EPV) metric.

The creation of the EPV metric has been credited to Bruce Greenwald. He was a former professor at Columbia University and a prominent value investor who was looking for ways to circumvent the series of guesswork choices that must be made when applying the discounted cash flow valuation model. The EPV is calculated as the adjusted earnings divided by the weighted average cost of capital.

The following three stocks thus seem reasonably priced, as their share prices are trading below their respective EPVs.

Regions Financial Corp

The first stock that makes the cut is Regions Financial Corp (NYSE:RF), a U.S. regional bank based in Birmingham, Alabama.

Regions Financial Corp's EPV is $32.15 per share (as of June 29), which is higher compared to the share price of $12.49 at close on Tuesday for a margin of safety of 61.15%.

After a 20% decrease which occurred in the share price over the past year, the market capitalization is $11.99 billion and the 52-week range is $6.94 to $17.54.

GuruFocus has assigned a score of 3 out of 10 to the company's financial strength and of 4 out of 10 to its profitability.

Wall Street sell-side analysts issued an overweight recommendation rating with an average target price of $13.52 per share for the stock.

VANGUARD GROUP INC dominates the group of the company's top fund holders, owning 12.58% of shares outstanding. It is followed by BlackRock Inc. with 8.98% and STATE STREET CORP with 5.55%.

Fifth Third Bancorp

The second stock that makes the cut is Fifth Third Bancorp (NASDAQ:FITB), a Cincinnati, Ohio-based regional bank providing a broad range of financial services to U.S. clients.

Fifth Third Bancorp's EPV is $71.19 per share (as of June 29), which exceeds Tuesday's closing share price of $23.12, giving a margin of safety of 67.52%.

Due to a 15.5% share price decline which occurred over the past year, the market capitalization is now $16.47 billion and the 52-week range is $11.10 to $31.64.

GuruFocus has assigned a score of 3 out of 10 to the company's financial strength rating and of 5 out of 10 to its profitability rating.

Wall Street sell-side analysts issued an overweight recommendation rating for this stock and have established an average target price of $24.94 per share.

The company's top fund holder is VANGUARD GROUP INC with 10.48% of shares outstanding, followed by PRICE T ROWE ASSOCIATES INC /MD/ with 9.39% and BlackRock Inc. with 8.06%.

MetLife Inc

The third stock that makes the cut is MetLife Inc (NYSE:MET), a New York-based life insurance company.

MetLife Inc's EPV is $315.16 per share (as of June 29), which is higher than the share price of $39 at close on Tuesday, yielding a large margin of safety of 87.63%.

As a result of a 15.55% share price fall that took place over the past year, the market capitalization now trades at $35.40 billion and the 52-week range is $22.85 to $53.28.

GuruFocus has assigned a score of 5 out of 10 to the financial strength rating and a score of 6 out of 10 to the profitability of the company.

Wall Street sell-side analysts issued an overweight recommendation rating with an average target price of $45.80 per share for this stock.

With 7.31% of shares outstanding, Dodge & Cox is the largest fund holder, followed by BlackRock Inc. with 7.30% and VANGUARD GROUP INC with 6.48%.

Disclosure: I have no position in any security mentioned.

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About the author:

Alberto Abaterusso
I am a contributor at GuruFocus. I primarily write about how to pick potential value stocks. Gold, silver and precious metals mining industries is also my cup of tea. My articles have also been widely linked by popular sites, including MarketWatch, Financial Times, 24hGold, Investopedia, Financial.org, CNBS, MSN Money, Zachs, Reuters and others. I hold a Master\\\'s Degree in Business Administration from Università degli Studi di Bari (Italy), Aldo Moro. I am based in The Netherlands.

You can follow me on Twitter at https://twitter.com/AAbaterusso

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