Many investors like to look for value in stocks, but this can be very tough to define. There is great debate regarding which metrics are the best to focus on in this regard, and which are not really quality indicators of future performance. Fortunately, with our new style score system we have identified the key statistics to pay close attention to and thus which stocks might be the best for value investors in the near term.
This method discovered several great candidates for value-oriented investors, but today let’s focus on American Electric Power Co., Inc. AEP as this stock is looking especially impressive right now. And while there are numerous reasons why this is the case, we have highlighted three of the most vital reasons for AEP’s status as a solid value stock below:
Forward PE for American Electric
Easily one of the most popular readings for value investors, the forward PE ratio shows us the current price of a stock divided by the full year earnings. Generally speaking, value investors like to see this ratio below 20, though it can vary by industry.
Right now, AEP has a forward PE of 15.80, which means that investors are paying $15.80 for each dollar in expected American Electric earnings this year. Compared to the industry at large this is pretty favorable as the overall space has an average PE of 16.92 in comparison.
Price/Cash Flow for American Electric Stock
An often overlooked ratio that can still be a great indicator of value is the price/cash flow metric. This reading is preferred by some since it avoids amortization and depreciation concerns and can give a more accurate picture of the financial health in a business.
The P/CF ratio for AEP comes in at 7.42, and since investors are generally looking for a reading under 20 here, this is pretty good news. Meanwhile, we should also point out that the industry average for this metric is 7.55, so American Electric has its peers beat in this regard too.
AEP Earnings Estimate Revisions Moving in the Right Direction
The solid value ratios outlined in the preceding paragraphs might be enough for some investors, but we should also note that the earnings estimate revisions have been trending in a positive direction as well. Analysts who follow AEP stock have been raising their estimates for the company lately, meaning that the EPS picture is looking a bit more favorably for American Electric now.
Over the past 60 days 3 earnings estimates have gone higher compared to no downward revision for the full year, while we are also seeing that 6 estimates have moved upwards with no downward revision for the next year time frame. These revisions have helped to boost the consensus estimate as 60 days ago AEP was expected to post earnings of $3.58 per share for the full year though today it looks to have EPS of $3.60 for the full year.
Bottom Line
For the reasons detailed above, investors shouldn’t be surprised to read that we have AEP as a stock with a Value Score of ‘B’ and a Zacks Rank #2 (Buy). So if you are a value investor, definitely keep AEP on your short list as this looks be a stock that is very well-positioned for gains in the near term.
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