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Are Investors Undervaluing Covanta (CVA) Right Now?

Zacks Equity Research
·2 mins read

While the proven Zacks Rank places an emphasis on earnings estimates and estimate revisions to find strong stocks, we also know that investors tend to develop their own individual strategies. With this in mind, we are always looking at value, growth, and momentum trends to discover great companies.

Of these, perhaps no stock market trend is more popular than value investing, which is a strategy that has proven to be successful in all sorts of market environments. Value investors use a variety of methods, including tried-and-true valuation metrics, to find these stocks.

Zacks has developed the innovative Style Scores system to highlight stocks with specific traits. For example, value investors will be interested in stocks with great grades in the "Value" category. When paired with a high Zacks Rank, "A" grades in the Value category are among the strongest value stocks on the market today.

One stock to keep an eye on is Covanta (CVA). CVA is currently sporting a Zacks Rank of #2 (Buy), as well as a Value grade of A.

Value investors also frequently use the P/S ratio. This metric is found by dividing a stock's price with the company's revenue. Some people prefer this metric because sales are harder to manipulate on an income statement. This means it could be a truer performance indicator. CVA has a P/S ratio of 0.59. This compares to its industry's average P/S of 0.93.

Finally, our model also underscores that CVA has a P/CF ratio of 4.74. This metric takes into account a company's operating cash flow and can be used to find stocks that are undervalued based on their solid cash outlook. This company's current P/CF looks solid when compared to its industry's average P/CF of 4.94. Over the past year, CVA's P/CF has been as high as 13.62 and as low as 4.37, with a median of 9.92.

These are just a handful of the figures considered in Covanta's great Value grade. Still, they help show that the stock is likely being undervalued at the moment. Add this to the strength of its earnings outlook, and we can clearly see that CVA is an impressive value stock right now.


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