Is China Eastern Airlines a Great Stock for Value Investors?

Value investing is easily one of the most popular ways to find great stocks in any market environment. After all, who wouldn’t want to find stocks that are either flying under the radar and are compelling buys, or offer up tantalizing discounts when compared to fair value?

One way to find these companies is by looking at several key metrics and financial ratios, many of which are crucial in the value stock selection process. Let’s put China Eastern Airlines Corporation Limited CEA stock into this equation and find out if it is a good choice for value-oriented investors right now, or if investors subscribing to this methodology should look elsewhere for top picks:

PE Ratio

A key metric that value investors always look at is the Price to Earnings Ratio, or PE for short. This shows us how much investors are willing to pay for each dollar of earnings in a given stock, and is easily one of the most popular financial ratios in the world. The best use of the PE ratio is to compare the stock’s current PE ratio with: a) where this ratio has been in the past; b) how it compares to the average for the industry/sector; and c) how it compares to the market as a whole.

On this front, China Eastern Airlines has a trailing twelve months PE ratio of 8.43, as you can see in the chart below:

This level actually compares pretty favorably with the market at large, as the PE for the S&P 500 stands at about 19.89. If we focus on the long-term PE trend, China Eastern Airlines’ current PE level puts it slightly below its midpoint of 9.74 over the past five years. Moreover, the current level stands well below the highs for the stock, signifying that it could be a superb entry point.

 

Further, the stock’s PE also compares favorably with the Zacks classified Transportation sector’s trailing twelve months PE ratio, which stands at 16.09. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.

We should also point out that China Eastern Airlines has a forward PE ratio (price relative to this year’s earnings) of 10.09, so it is fair to expect an increase in the company’s share price in the near future.

P/S Ratio

Another key metric to note is the Price/Sales ratio. This approach compares a given stock’s price to its total sales, where a lower reading is generally considered better. Some people like this metric more than other value-focused ones because it looks at sales, something that is far harder to manipulate with accounting tricks than earnings.

Right now, China Eastern Airlines’ has a P/S ratio of about 0.54. This is much lower than the S&P 500 average, which comes in at 3.08 right now, indicating that the stock is undervalued from this aspect too.

 

Broad Value Outlook

In aggregate, China Eastern Airlines’ currently has a Zacks Value Style Score of ‘A’, putting it into the top 20% of all stocks we cover from this look. This makes China Eastern Airlines’ a solid choice for value investors, and some of its other key metrics make this pretty clear too.

For example, China Eastern Airlines’ P/CF ratio (another great indicator of value) comes in at 2.43, which is far better than the industry average of 5.10. Clearly, CEA is a solid choice on the value front from multiple angles.

What About the Stock Overall?

Though China Eastern Airlines might be a good choice for value investors, there are plenty of other factors to consider before investing in this name. In particular, it is worth noting that the company has a Growth grade of ‘B’ and a Momentum score of ‘F’. This gives CEA a Zacks VGM score—or its overarching fundamental grade—of ‘A’. (You can read more about the Zacks Style Scores here >>)

However, the company’s recent earnings estimates have been disappointing, as the full year estimate has seen one downward revision with no upward revisions in the last sixty days.  This has had a negative impact on the consensus estimate, as the full year estimate has decreased 8.1%, in the last two months. You can see the consensus estimate trend and recent price action for the stock in the chart below:

China Eastern Airlines Corporation Ltd. Price and Consensus
 

China Eastern Airlines Corporation Ltd. Price and Consensus | China Eastern Airlines Corporation Ltd. Quote

In light of this bearish trend, the stock has just a Zacks Rank #3 (Hold), which indicates that we are looking for in-line performance from the company in the near term.

Bottom Line

China Eastern Airlines’ is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. Despite having a Zacks Rank #3, the stock belongs to an industry which is ranked among the Top 21%, which indicates that broader factors are favorable for the company. Further, over the past one year, the Zacks classified Transportation – Airlines industry’s performance has outdone the broader market, as you can see below:

So, value investors might want for estimates to turn around in this name first, but once that happens, this stock could be a compelling pick.

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