A Trio of Stocks Trading Below the Earnings Power Value
- By Alberto Abaterusso
When screening the market for stocks that are trading at fair prices, one tool investors can use is the earnings power value metric.
The EPV was designed by Bruce Greenwald, a former professor at Columbia University and a prominent value investor who was in search of ways to avoid the series of guesswork choices that must be made when applying the discounted cash flow valuation model. The EPV is calculated as the adjusted earnings divided by the weighted average cost of capital.
The following stocks seem to be fairly priced, as their share prices are standing lower than their respective EPVs.
Bank of New York Mellon
The first stock that qualifies is Bank of New York Mellon Corp. (NYSE:BK), a New York-based provider of various financial products and services to American and international clients.
New York Mellon's EPV is $260.10 per share (as of Dec. 30), which is higher than the share price of $48.34 at close on Tuesday for a margin of safety of about 81.22%.
Due to a 41% share price increase, which happened over the past year, the market capitalization is $42.82 billion. The 52-week range is $31.24 to $49.13.
GuruFocus has assigned a score of 4 out of 10 to the company's financial strength and 6 out of 10 to its profitability.
Wall Street sell-side analysts issued a median recommendation rating of overweight with an average target price of $52.91 per share for the stock.
China Shenhua Energy
The second stock that makes the cut is China Shenhua Energy Co. Ltd. (CSUAY), a Beijing-based corporation that engages in the production and sale of coal and power in China and internationally.
China Shenhua Energy's EPV is $12.43 per share (as of Dec. 30), which is higher than Tuesday's closing share price of $8.18, for a margin of safety of 32.17%.
Due to a nearly 17.74% increase in the share price over the past year, the market capitalization now stands at $41.87 billion. The 52-week range is $5.98 to $8.43.
GuruFocus has assigned a score of 7 out of 10 to the company's financial strength rating and of 8 out of 10 to its profitability rating.
Wall Street sell-side analysts issued a median recommendation rating of overweight for this stock and have established an average target price of $15.86 per share.
Trustmark
The third stock that meets the criteria is Trustmark Corp. (NASDAQ:TRMK), a Jackson, Mississippi-based holder of Trustmark National Bank, a regional bank.
Trustmark's EPV is $52.59 per share (as of Dec. 30, 2020), which is much higher than the share price of $32.88 at close on Tuesday, yielding a margin of safety of 35.77%.
As a result of a 43.44% increase in the share price over the past year, the market capitalization now stands at around $2.15 billion. The 52-week range is $20.08 to $36.31.
GuruFocus has assigned a score of 4 out of 10 to the company's financial strength and a score of 5 out of 10 to its profitability.
Wall Street sell-side analysts issued a median recommendation rating of hold with an average target price of $34.75 per share.
Disclosure: I have no positions in any securities mentioned.
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This article first appeared on GuruFocus.
