Zacks
0
All posts from Zacks
Zacks in Our Research. Your Success.,

Is EP Energy (EPE) Stock a Suitable Value Pick Now?

Value investing is easily one of the most popular ways to find great stocks in any market environment. After all, who wouldn’t want to find stocks that are either flying under the radar and are compelling buys, or offer up tantalizing discounts when compared to fair value?

One way to find these companies is by looking at several key metrics and financial ratios, many of which are crucial in the value stock selection process. Let’s put EP Energy Corporation EPE stock into this equation and find out if it is a good choice for value-oriented investors right now, or if investors subscribing to this methodology should look elsewhere for top picks:

PE Ratio

A key metric that value investors always look at is the Price to Earnings Ratio, or PE for short. This shows us how much investors are willing to pay for each dollar of earnings in a given stock, and is easily one of the most popular financial ratios in the world. The best use of the PE ratio is to compare the stock’s current PE ratio with: a) where this ratio has been in the past; b) how it compares to the average for the industry/sector; and c) how it compares to the market as a whole.

On this front, EP Energy has a trailing twelve months PE ratio of 10.33, as you can see in the chart below:



This level actually compares pretty favorably with the market at large, as the PE for the S&P 500 stands at about 20.19. If we focus on the long-term PE trend, EP Energy’s current PE level puts it above its midpoint over the past two years.



Further, the stock’s PE also compares favorably with the Zacks classified Oils-Energy sector’s trailing twelve months PE ratio, which stands at 34.79. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.



P/S Ratio

Another key metric to note is the Price/Sales ratio. This approach compares a given stock’s price to its total sales, where a lower reading is generally considered better. Some people like this metric more than other value-focused ones because it looks at sales, something that is far harder to manipulate with accounting tricks than earnings.

Right now, EP Energy has a P/S ratio of about 0.96. This is significantly lower than the S&P 500 average, which comes in at 3.13 right now. As we can see in the chart below, this is slightly above the median for this stock in particular over the past few years.



EPE is actually in the higher zone of its trading range in the time period per the P/S metric, which suggests that the company’s stock price has already appreciated to some degree, relative to its sales.

Broad Value Outlook

In aggregate, EP Energy currently has a Zacks Value Style Score of ‘B’, putting it into the top 40% of all stocks we cover from this look. This makes EP Energy a solid choice for value investors, and some of its other key metrics make this pretty clear too.

For example, its P/CF ratio (another great indicator of value) comes in at 1.09, which is far better than the industry average of 3.94. The ratio is generally applied to find out whether a company’s stock is overpriced or underpriced with reference to its cash flows generation potential compared with its competitors. Clearly, EPE is a solid choice on the value front from multiple angles.

What About the Stock Overall?

Though EP Energy might be a good choice for value investors, there are plenty of other factors to consider before investing in this name. In particular, it is worth noting that the company has a Growth grade of ‘C’ and a Momentum score of ‘F’. This gives EPE a Zacks VGM score—or its overarching fundamental grade—of ‘C’. (You can read more about the Zacks Style Scores here >>)

Meanwhile, the company’s recent estimates have been mixed at best. The current quarter as well as the current year has seen three estimates go higher in the past sixty days compared to four lower.

This has had a negative impact on the consensus estimate though as the current quarter consensus loss estimate has widened by 11.1% in the past two months, while the full year loss estimate has widened by 13.9% over the same time frame. You can see the consensus estimate trend and recent price action for the stock in the chart below:

EP Energy Corporation Price and Consensus
 

EP Energy Corporation Price and Consensus | EP Energy Corporation Quote

This somewhat bearish trend is why the stock has just a Zacks Rank #3 (Hold) and why we are looking for in-line performance from the company in the near term.

Bottom Line

EP Energy is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. However, with a sluggish industry rank (among the bottom 25%) and a Zacks Rank #3, it is hard to get too excited about this company overall. In fact, over the past two years, the Zacks Oil and Gas - Exploration and Production - United States industry has clearly underperformed the broader market, as you can see below:



So, value investors might want to wait for estimates, analyst sentiment and broader factors to turn around in this name first, but once that happens, this stock could be a compelling pick.

Will You Make a Fortune on the Shift to Electric Cars?

Here's another stock idea to consider. Much like petroleum 150 years ago, lithium power may soon shake the world, creating millionaires and reshaping geo-politics. Soon electric vehicles (EVs) may be cheaper than gas guzzlers. Some are already reaching 265 miles on a single charge.

With battery prices plummeting and charging stations set to multiply, one company stands out as the #1 stock to buy according to Zacks research.

It's not the one you think.

See This Ticker Free >>


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
 
EP Energy Corporation (EPE): Free Stock Analysis Report
 
To read this article on Zacks.com click here.