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Is Highwoods Properties (HIW) a Great Stock for Value Investors?

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·5 min read
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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 Highwoods Properties, Inc. HIW 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, Highwoods Properties has a trailing twelve months PE ratio of 13.2, as you can see in the chart below:

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

This level actually compares pretty favorably with the market at large, as the PE for the S&P 500 stands at about 25.1. If we focus on the long-term PE trend, Highwoods Properties’ current PE level puts it marginally below its midpoint over the past five years.

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

Further, the stock’s PE also compares favorably with the Finance sector’s trailing twelve months PE ratio, which stands at 16.5. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

We should also point out that Highwoods Properties has a forward PE ratio (price relative to this year’s earnings) of just 12.9, so it is fair to say that a slightly more value-oriented path may be ahead for Highwoods Properties stock in the near term too.

P/CF Ratio

An often overlooked ratio that can still be a great indicator of value is the price/cash flow metric. This ratio doesn’t take amortization and depreciation into account, so can give a more accurate picture of the financial health in a business. This is a preferred metric to some valuation investors because cash flows are (a) generally less prone to manipulation by the company’s management, and (b) are less affected by variation in accounting policies between different companies.

The ratio is generally applied to find out whether a company’s stock is overpriced or underpriced with reference to its cash flows generation potential compared with its competitors. However, it is not commonly used for cross-industry comparison, as the average price to cash flow ratio varies from industry to industry.

In this case, Highwoods Properties’ P/CF ratio of 13.5 is lower than the REIT and Equity Trust - Other’s figure of 23.5, which indicates that the stock is undervalued in this respect.

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

Broad Value Outlook

In aggregate, Highwoods Properties currently has a Value Score of B, putting it into the top 40% of all stocks we cover from this look. This makes Highwoods Properties a solid choice for value investors.

What About the Stock Overall?

Though Highwoods Properties 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 Score of D and a Momentum Score of A. This gives HIW a Zacks VGM score—or its overarching fundamental grade—of B. (You can read more about the Zacks Style Scores here >>)

Meanwhile, the company’s recent earnings estimates have been encouraging. The current quarter has seen one estimate go higher in the past sixty days, while the full year estimate has seen three up and one down in the same time period.

This has had a favorable impact on the consensus estimate as both the current quarter consensus estimate and full year estimate have risen by 1.1% in the past two months. You can see the consensus estimate trend and recent price action for the stock in the chart below:

Highwoods Properties, Inc. Price and Consensus

Highwoods Properties, Inc. Price and Consensus
Highwoods Properties, Inc. Price and Consensus

Highwoods Properties, Inc. price-consensus-chart | Highwoods Properties, Inc. Quote

The stock holds a Zacks Rank #3 (Hold), which indicates expectations of in-line performance from the company in the near term. However, Highwoods Properties is enjoying bullish analyst sentiment, as indicated by the positive estimate revisions, and this works in the company’s favor.

Bottom Line

Highwoods Properties is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. However, with a sluggish industry rank and a Zacks Rank #3, it is hard to get too excited about this company overall. In fact, over the past two years, the Finance industry has clearly underperformed the broader market, as you can see below:

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

So, despite a Zacks Rank #3, we believe that bullish analyst sentiment and favorable industry factors make this value stock a compelling pick.


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