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Alberto Abaterusso
Alberto Abaterusso
Articles (2546) 

3 Stocks Trading Below Their Earnings Power Values

They offer significant margins of safety

December 28, 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 attributed to Bruce Greenwald, a professor at Columbia University and famous value investor. Greenwald was looking for ways to bypass the series of guesswork choices that are essential 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 appear reasonably priced, as their share prices are trading lower than their respective EPVs.

Capital One Financial Corp

The first stock that makes the cut is Capital One Financial Corp (NYSE:COF), a McLean, Virginia-based provider of financial and credit services to consumers and commercial clients in North America and the UK.

Capital One's EPV is $214.79 per share (as of the most recent quarter), which is much higher than the share price of $97.30 at close on Thursday, Dec. 24, for a margin of safety of 54.7%.

Due to a 5.2% decrease that occurred in the share price over the past year, the market capitalization is $44.5 billion and the 52-week range is $38 to $107.59.

GuruFocus has assigned a score of 3 out of 10 to the company's financial strength and of 6 out of 10 to its profitability.

Wall Street sell-side analysts issued an overweight recommendation rating with an average target price of $101.56 per share for the stock.

Dodge & Cox dominates the group of the company's top fund holders, owning 11.04% of shares outstanding. It is followed by VANGUARD GROUP INC with 7.54% and BlackRock Inc. with 7.24%.

Citizens Financial Group Inc

The second stock that meets the criteria is Citizens Financial Group Inc (NYSE:CFG), a Providence, Rhode Island-based provider of various banking products to consumers and businesses in the U.S.

Citizens Financials' EPV is $46.25 per share (as of the most recent quarter), which is higher than Thursday's closing share price of $35.12, yielding a margin of safety of 24.07%.

As a result of a 13.13% decline in the share price which occurred over the past year, the market capitalization now stands at $15 billion and the 52-week range is $14.12 to $41.29.

GuruFocus has assigned a score of 3 out of 10 to the company's financial strength rating and of 4 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 $35.85 per share.

The company's top fund holder is VANGUARD GROUP INC with 11.59% of shares outstanding, followed by BlackRock Inc. with 10.01% and Capital International Investors with 5.65%.

Zions Bancorp NA

The third stock that meets the criteria is Zions Bancorp NA (NASDAQ:ZION), a Salt Lake City, Utah-based regional bank.

Zions' EPV is $81.95 per share (as of the most recent quarter), which is much higher than the share price of $43.34 at close on Thursday, Dec. 24, offering a margin of safety of 47.12%.

Following a 16.3% fall that occurred in the share price over the past year, the market capitalization now trades at $7.11 billion and the 52-week range is $23.58 to $52.48.

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

Wall Street sell-side analysts issued a hold recommendation rating with an average target price of $42.48 per share for this stock.

With 11.47% of shares outstanding, VANGUARD GROUP INC is the company's largest top fundholder, followed by BlackRock Inc. with 7.65% of shares outstanding and Invesco Ltd. with 6.24% of shares outstanding.

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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