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Zacks.com highlights: Kraton, Greenbrier, Kelly Services, CVR Refining and POSCO

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Zimmer (ZBH) doesn't possess the right combination of the two key ingredients for a likely earnings beat in its upcoming report. Get prepared with the key expectations.

For Immediate Release

Chicago, IL – Dec 19, 2017 - Stocks in this week’s article include: Kraton Corporation KRA, The Greenbrier Companies, Inc. GBX, Kelly Services, Inc. KELYA, CVR Refining, LP CVRR and POSCO PKX.

Screen of the Week of Zacks Investment Research:

Pick 5 Bargain Stocks with Attractive EV/EBITDA Ratios

The price-to-earnings (P/E) ratio is broadly considered by investors as a yardstick for assessing the fair market value of a stock. The idea of hunting for stocks with a low P/E is ingrained in the minds of many value investors. But even this straightforward, broadly used valuation metric suffers a few downsides.

What Makes EV/EBITDA a Better Alternative?

Although P/E is preferred by many investors while uncovering bargain stocks, another valuation metric called EV/EBITDA does a better job. The ratio is sometimes viewed as a superior substitute as it offers a clearer picture of a firm’s valuation and its earnings potential. EV/EBITDA has a more comprehensive approach to valuation as it determines a firm’s total value. In contrast, P/E just considers a firm’s equity portion.

Also known as the enterprise multiple, EV/EBITDA is the enterprise value (EV) of a stock divided by its earnings before interest, taxes, depreciation and amortization (EBITDA). EV is the sum of a company’s market capitalization, its debt and preferred stock minus cash and cash equivalents.

EBITDA, the other element, gives the true picture of a company’s profitability as it removes the impact of non-cash expenses like depreciation and amortization that depress net earnings. It is also often used as a proxy for cash flows.

Generally, the lower the EV/EBITDA ratio, the more alluring it is. A low EV/EBITDA ratio could signal that a stock is potentially undervalued.  

EV/EBITDA also takes into account the debt on a company’s balance sheet that P/E 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 with a low EV/EBITDA multiple could be seen as attractive takeover candidates.

Another major drawback of P/E is that it can’t be used to value a loss-making entity. Moreover, a firm’s earnings are subject to accounting estimates and management manipulation. On the other hand, EV/EBITDA is less open to manipulation and can also be used to value companies that are making loss but are EBITDA-positive.

Moreover, EV/EBITDA is a useful tool in assessing the value of companies that are highly leveraged and have a high degree of depreciation. The ratio also allows the comparison of companies with different debt levels.

However, EV/EBITDA is not devoid of limitations and it alone can’t conclusively determine a stock’s inherent potential and its future performance. The ratio varies across industries and is generally not appropriate while comparing stocks in different industries given their diverse capital spending requirements.

As such, a strategy only based on EV/EBITDA might not fetch the desired results. But you can combine it with other major ratios such as price-to-book (P/B), P/E and price-to-sales (P/S) to screen bargain stocks.

And that's what we're screening for today…

For the rest of this Screen of the Week article please visit Zacks.com at: https://www.zacks.com/stock/news/286179/pick-5-bargain-stocks-with-attractive-evebitda-ratios

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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.

Strong Stocks that Should Be in the News

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Greenbrier Companies, Inc. (The) (GBX) : Free Stock Analysis Report
 
CVR Refining, LP (CVRR) : Free Stock Analysis Report
 
Kraton Corporation (KRA) : Free Stock Analysis Report
 
POSCO (PKX) : Free Stock Analysis Report
 
Kelly Services, Inc. (KELYA) : Free Stock Analysis Report
 
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