U.S. Markets open in 5 hrs 46 mins

Zacks.com featured highlights: Nippon Telegraph and Telephone, Tech Data, Big 5 Sporting Goods, Plains GP Holdings and Caleres

Zacks Equity Research

For Immediate Release

Chicago, IL – March 20, 2017 - Stocks in this week’s article includeNippon Telegraph and Telephone Corporation (NYSE: NTT – Free Report ), Tech Data Corporation (NASDAQ: TECD – Free Report ), Big 5 Sporting Goods Corporation (NASDAQ: BGFV – Free Report ), Plains GP Holdings, L.P. (NYSE: PAGP – Free Report ) and Caleres, Inc. (NYSE: CAL – Free Report ).

Screen of the Week of Zacks Investment Research:

5 Stocks with Attractive EV/EBITDA Ratios to Scoop Up

The price-to-earnings (P/E) multiple, due to its simplicity, enjoys huge popularity among investors looking for stocks that are trading at a discount. A widely favored approach by value investors is to chase stocks that have a low P/E ratio. However, even this straightforward, easy-to-compute, multiple is not without its shortcomings.

Why EV/EBITDA is a Better Substitute to P/E?

While P/E is undoubtedly the most coveted metric in the value investing world, a more complicated metric called EV/EBITDA does a better job in working out the fair market value of a firm. Sometimes viewed as a better alternative to P/E, EV/EBITDA offers a clearer picture of a company’s valuation and its earnings potential. EV/EBITDA also has a more complete approach to valuation as it determines the total value of a firm as opposed to P/E which just considers its equity portion.

EV/EBITDA, also referred to as enterprise multiple, is the enterprise value (EV) of a stock divided by its earnings before interest, taxes, depreciation and amortization (EBITDA). EV is a firm’s market capitalization plus the market value of its debt and preferred equity minus cash. In a nutshell, it is the total value of a company.

The other element of the ratio, EBITDA, gives a clearer picture of a company’s profitability as it eliminates 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 appealing it is. A low EV/EBITDA ratio could signal that a stock is potentially undervalued.

EV/EBITDA takes into account the debt on a company’s balance sheet that P/E ratio does not. Due to this reason, EV/EBITDA is generally used to value potential acquisition targets as it shows the amount of debt the acquirer has to assume. Stocks flaunting 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 entity. A firm’s earnings are also subject to accounting estimates and management manipulation. On the contrary, EV/EBITDA is less open 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 measuring the value of companies with high balance sheet leverage and substantial depreciation and amortization expenses. It also can be used to compare companies with different levels of debt.

But EV/EBITDA is not without its limitations. It varies across industries and is generally not appropriate while comparing stocks in different industries given their diverse capital spending requirements.

Thus, instead of solely banking 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 screen true value stocks.

Screening Criteria

Here are the parameters to screen for value 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 17 stocks that passed the screen:

Nippon Telegraph and Telephone Corporation (NYSE:NTT – Free Report ) offers a range of telecommunications services, including telephone, telegraph, leased circuits, data communication, terminal equipment sales and other services. This Zacks Rank #1 stock has an expected year-over-year earnings growth rate of 17.5% for 2017.

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 earnings per share (EPS) growth rate of 22.8% for 3 to 5 years. You can see the complete list of today’s Zacks #1 Rank stocks here.

Big 5 Sporting Goods Corporation (NASDAQ:BGFV – Free Report ) is a leading sporting goods retailer in the western U.S., operating stores under the name Big 5 Sporting Goods. This Zacks Rank #1 stock has an expected EPS growth rate of 12% for 3 to 5 years.

Plains GP Holdings, L.P. (NYSE:PAGP – Free Report ), through its subsidiaries, is involved in the transportation, storage, terminaling, and marketing of crude oil and refined products. This Zacks Rank #2 stock has an expected year-over-year earnings growth rate of 196% for 2017.

Caleres, Inc. (NYSE:CAL – Free Report ) is a footwear retailer and wholesaler, involved in the operation of retail shoe stores and e-commerce Websites as well as the design, sourcing and marketing of footwear for women and men. This Zacks Rank #2 stock has an expected EPS growth rate of 11% for 3 to 5 years.

You can get the rest of the stocks on this list by signing up now for your 2-week free trial to the Research Wizard and start using this screen in your own trading. Further, you can also create your own strategies and test them first before taking the investment plunge.

The Research Wizard is a great place to begin. It's easy to use. Everything is in plain language. And it's very intuitive. Start your Research Wizard trial today. And the next time you read an economic report, open up the Research Wizard, plug your finds in, and see what gems come out.

Click here to sign up for a free trial to the Research Wizard today .

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.

Disclosure: Performance information for Zacks’ portfolios and strategies are available at: https://www.zacks.com/performance .

Zacks Restaurant Recommendations: In addition to dining at these special places, you can feast on their stock shares. A Zacks Special Report spotlights 5 recent IPOs to watch plus 2 stocks that offer immediate promise in a booming sector. Download it free »

Sign up now for your free trial today and start picking better stocks immediately. And with the backtesting feature, you can test your ideas to see how you can improve your trading in both up markets and down markets. Don’t wait for the market to get better before you decide to do better. Start learning how to be a better trader today: https://at.zacks.com/?id=111

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.

About Screen of the Week

Zacks.com created the first and best screening system on the web earning the distinction as the "#1 site for screening stocks" by Money Magazine. But powerful screening tools is just the start. That is why Zacks created the Screen of the Week to highlight profitable stock picking strategies that investors can actively use. Each week, Zacks Profit from the Pros free email newsletter shares a new screening strategy. Learn more about it here https://at.zacks.com/?id=112

About Zacks

Zacks.com is a property of Zacks Investment Research, Inc., which was formed in 1978. The later formation of the Zacks Rank, a proprietary stock picking system; continues to outperform the market by nearly a 3 to 1 margin. The best way to unlock the profitable stock recommendations and market insights of Zacks Investment Research is through our free daily email newsletter; Profit from the Pros. In short, it's your steady flow of Profitable ideas GUARANTEED to be worth your time! Click here for your free subscription to Profit from the Pros .

Get the full Report on NTT - FREE

Get the full Report on TECD - FREE

Get the full Report on BGFV - FREE

Get the full Report on PAGP - FREE

Get the full Report on CAL - FREE

Follow us on Twitter: https://twitter.com/zacksresearch

Join us on Facebook: https://www.facebook.com/ZacksInvestmentResearch

Zacks Investment Research is under common control with affiliated entities (including a broker-dealer and an investment adviser), which may engage in transactions involving the foregoing securities for the clients of such affiliates.

Contact: Jim Giaquinto

Company: Zacks.com

Phone: 312-265-9268

Email: pr@zacks.com

Visit: https://www.zacks.com/performance

Zacks.com provides investment resources and informs you of these resources, which you may choose to use in making your own investment decisions. Zacks is providing information on this resource to you subject to the Zacks "Terms and Conditions of Service" disclaimer. www.zacks.com/disclaimer .

Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.


Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
Nippon Telegraph and Telephone Corporation (NTT): Free Stock Analysis Report
 
Tech Data Corporation (TECD): Free Stock Analysis Report
 
Big 5 Sporting Goods Corporation (BGFV): Free Stock Analysis Report
 
Plains Group Holdings, L.P. (PAGP): Free Stock Analysis Report
 
Caleres, Inc. (CAL): Free Stock Analysis Report
 
To read this article on Zacks.com click here.