Zacks.com featured highlights: Nippon Telegraph and Telephone, Tech Data, Plains GP Holdings, Synnex and Regions Financial

For Immediate Release

Chicago, IL – April 20, 2017 - Stocks in this week’s article include Nippon Telegraph and Telephone Corporation (OTCMKTS: NTTYY – Free Report ), Tech Data Corporation (NASDAQ: TECD – Free Report ), Plains GP Holdings, L.P. (NYSE: PAGP – Free Report ), Synnex Corporation (NYSE: SNX – Free Report ) and Regions Financial Corporation (NYSE: RF – Free Report ).

Screen of the Week of Zacks Investment Research:

5 Bargain Stocks with Impressive EV/EBITDA Ratios

The price-to-earnings (P/E) ratio enjoys great popularity in the value investing world and is preferred by many investors while uncovering bargain stocks. However, even this straightforward, easy-to-compute multiple has a few downsides.

EV/EBITDA is a Better Option, But Why?

While P/E is widely considered as a useful tool to work out the fair value of a stock, a more complicated and less-used metric called EV/EBITDA is sometimes viewed as a better alternative as it offers a clearer picture of a firm’s valuation and its earnings potential. EV/EBITDA, also referred to as enterprise multiple, has a more complete approach to valuation as it determines a firm’s total value. P/E, on the other hand, considers only its equity portion.

EV/EBITDA is essentially the enterprise value (EV) of a stock divided by its earnings before interest, taxes, depreciation and amortization (EBITDA). EV is the sum of a company’s market capitalization, its debt and preferred stock minus cash and cash equivalents. Essentially, it is the entire value of a company.

The other component of the ratio, EBITDA gives a clearer picture of a company’s profitability as it removes the impact of non-cash expenses like depreciation and amortization that dilute net earnings. It is also often used as a proxy for cash flows.

Usually, the lower the EV/EBITDA ratio, the more alluring it is. A low EV/EBITDA ratio could indicate that a stock is potentially undervalued.

Unlike P/E ratio, EV/EBITDA takes debt on a company’s balance sheet into account. Due to this reason, EV/EBITDA is typically used to value potential acquisition targets as it shows the amount of debt the acquirer has to assume. Stocks sporting a low EV/EBITDA multiple could be seen as attractive takeover candidates.

Another downside of P/E is that it can’t be used to value a loss-making firm. A firm’s earnings are also subject to accounting estimates and management manipulation. On the contrary, EV/EBITDA is less susceptible to manipulation and can also be used to value companies that are making loss but are EBITDA-positive.

EV/EBITDA is also a useful tool in evaluating the value of companies with high balance sheet leverage and considerable depreciation and amortization expenses. It also can be used to compare companies with different levels of debt.

However, EV/EBITDA is too not devoid of drawbacks. It varies across industries and is generally not appropriate while comparing stocks in different industries given their diverse capital spending requirements.

As such, instead of solely relying on EV/EBITDA, you can combine it with the other major ratios such as price-to-book (P/B), P/E and price-to-sales (P/S) to achieve the desired outcome.

Screening Criteria

Here are the parameters to screen for bargain stocks:

EV/EBITDA 12 Months-Most Recent less than X-Industry Median: A lower EV/EBITDA ratio represents a cheaper valuation.

P/E using (F1) less than X-Industry Median: This metric screens stocks that are trading at a discount to their peers.

P/B less than X-Industry Median: A lower P/B compared with the industry average implies that the stock is undervalued.

P/S less than X-Industry Median: The lower the P/S ratio the more attractive the stock is as investors will have to pay a smaller price for the same amount of sales generated by the company.

Estimated One-Year EPS Growth F(1)/F(0) greater than or equal to X-Industry Median: This parameter will help in screening stocks that have growth rates higher than the industry median. This is a meaningful indicator as decent earnings growth always adds to investor optimism.

Average 20-day Volume greater than or equal to 100,000: The addition of this metric ensures that shares can be traded easily.

Current Price greater than or equal to $5: This parameter will help in screening stocks that are trading at a minimum price of $5 or higher.

Zacks Rank less than or equal to 2: No screening is complete without the Zacks Rank, which has proven its worth since inception. It is a fundamental truth that stocks with a Zacks Rank #1 (Strong Buy) or 2 (Buy) have always managed to beat adversities and outperform the market.

Value Score of less than or equal to B: Our research shows that stocks with a Style Score of ‘A’ or ‘B’ when combined with a Zacks Rank #1 or 2 offer the best upside potential.

Here are five of the 11 stocks that passed the screen:

Nippon Telegraph and Telephone Corporation (OTCMKTS:NTTYY – Free Report ) provides a variety of telecommunications services, including telephone, telegraph, leased circuits, data communication, terminal equipment sales and other services. This Zacks Rank #1 stock has an expected earnings per share (EPS) growth rate of 11.4% for 3 to 5 years. You can see the complete list of today’s Zacks #1 Rank stocks here.

Tech Data Corporation (NASDAQ:TECD – Free Report ) is a leading provider of Internet technology products, logistics management and other value-added services. This Zacks Rank #1 stock has an expected EPS growth rate of 22.8% for 3 to 5 years.

Plains GP Holdings, L.P. (NYSE:PAGP – Free Report ), through its subsidiaries, is involved in the transportation, storage, terminalling, and marketing of crude oil and refined products. This Zacks Rank #2 stock has expected year-over-year earnings growth of 159.9% for 2017.

Synnex Corporation (NYSE:SNX – Free Report ) is a global IT supply chain services company offering a comprehensive range of services to original equipment manufacturers, software publishers and reseller customers worldwide. This Zacks Rank #2 stock delivered an average positive earnings surprise of 12.2% in the trailing four quarters.

Regions Financial Corporation (NYSE:RF – Free Report ) is a regional bank holding company and has banking-related subsidiaries engaged in mortgage banking, credit life insurance, leasing, and securities brokerage activities with offices in various Southeastern states. This Zacks Rank #2 stock has an expected EPS growth rate of 10.4% for 3 to 5 years.

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Disclosure: Officers, directors and/or employees of Zacks Investment Research may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material. An affiliated investment advisory firm may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material.

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Nippon Telegraph and Telephone Corporation (NTTYY): Free Stock Analysis Report
 
Tech Data Corporation (TECD): Free Stock Analysis Report
 
Plains Group Holdings, L.P. (PAGP): Free Stock Analysis Report
 
Synnex Corporation (SNX): Free Stock Analysis Report
 
Regions Financial Corporation (RF): Free Stock Analysis Report
 
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