Even considering Friday’s market sell-off, the overall stock market is still selling at or near all-time high valuation levels. Whether it’s the Shiller price-earnings ratio, a very low S&P 500 dividend yield or a simple price-sales ratio, the stock market still looks very expensive. However, the good news is the U.S. stock market is made up of thousands of different companies, and some of them are selling at very cheap valuations. Here’s three quality companies selling at single-digit price-earnings ratios.
AT&T
The new AT&T Inc. (T, Financial) emerged on April 8 and was free of all media and satellite assets. It managed to go back to its roots and is now a pure broadband and telecom company. The company owns massive amounts of telecom infrastructure, including fiber and wireless networks. The company plans to double its fiber footprint to over 30 million specific locations, including doubling its business customer locations to over 5 million. As of the end of the first quarter, the company had approximately 67.5 million wireless subscribers and 6.3 million fiber subscribers (which is only a 37% penetration rate). The company believes it can grow revenues in the low-single-digit range and produce Ebitda and earnings per share growth in the 5% to 6% range.
However, the market doesn’t seem to buying the story. The first clean year of the new AT&T financial results will be 2023 and analysts expected $2.58 in earnings per share, which is within the company’s guidelines. That puts the company’s forward price-earnings ratio at a remarkably low 7.5 times. Yes, the company does have a lot of debt on the balance sheet even post the media spinoffs, but the company’s prodigious free cash flow will pay down debt balances rather significantly over the next three to five years. That value will accrue to equity holders over time, resulting in a much higher price-earnings multiple. Further, the company’s post spin-off dividend yield is well over 5% with a payout ratio of below 50%.
Hibbett
Hibbett Inc. (HIBB, Financial), headquartered in Birmingham, Alabama, is a leading athletic-inspired fashion and sporting goods retailer with approximately 1,100 stores in 35 states nationwide. Hibbett’s history dates back over 75 years. The company operates stores in small to mid-sized markets, mostly in the Southeast, Southwest and lower Midwest regions of the United States. States with the most stores are Georgia, Texas and Alabama.
The company stated it expects to face a number of business and economic challenges in the current fiscal year. This includes ongoing supply chain disruption, a lack of stimulus and unemployment benefits, inflation, wage pressures and a more cautious consumer. So net sales are expected to be flat compared 2022 results. This implies comparable sales are expected to be in the negative low-single digits for the full year as the company is expected to open 30 to 40 stores during the year.
As a result, analysts' earnings per share estimates for this fiscal year are $9.84, a decline of 12% compared to the prior. However, analysts expected earnings to recover the following year in 2023 back to approximately 2021 levels. This creates a stunningly low price-earnings ratio of approximately 5 times current year earnings. Those low earnings valuations are usually reserved for companies with high debt levels, but Hibbett has no debt. In addition, the company is selling at only 4 times Ebitda.
Hanesbrands
Hanesbrands Inc. (HBI, Financial) is a leading producer of innerwear and athletic wear with such iconic brands as Hanes, Champion, Maidenform, Bali and Playtex. The company employs 61,000 people in 47 countries with about 70% of sales coming from North America and the rest in various international markets. Walmart (WMT, Financial) as a customer represents about 17% of total sales. The company rarely gets a high multiple as it is not in a sexy business, all jokes aside. Underwear is typically a replacement and population growth-driven business that doesn’t usually generate high growth rates.
However, the company recently unveiled a 2024 full potential growth and financial plan, which will be driven by increased consumer demand on a global basis. Hanesbrands increased its 2024 revenue target to approximately $8 billion, which includes an increase in Championbrand sales to approximately $3.2 billion, an increase in adjusted operating margins to over 14% and cumulative three-year free cash flow of approximately $1.6 billion.
Analysts' earnings per share estimates for the 2022 calendar year are $1.77, which puts the company selling at only 8 times this year’s earnings. The company does have a lot of debt on the balance sheet, but the leverage remains relatively safe at approximately 2.7 times. The company is comfortable with its free cash flow and liquidity position and indicated it plans on buying back shares in the first quarter of 2022. Lastly, the company’s dividend yield is currently over 4% with a payout ratio of only 33%.
