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Is Associated Banc-Corp a Great Stock for Value Investors?

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 Associated Banc-Corp ASB 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, Associated Banc-Corp has a trailing twelve months PE ratio of 18.84, 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 20.22. If we focus on the long-term PE trend, Associated Banc-Corp’s current PE level puts it above its midpoint over the past five years.

However, the stock’s PE compares unfavorably with the Zacks classified Banks – Midwest industry’s trailing twelve months PE ratio, which stands at 17.55. At the very least, this indicates that the stock is relatively overvalued right now, compared to its peers.

We should also point out that Associated Banc-Corp has a forward PE ratio (price relative to this year’s earnings) of just 17.71, so it is fair to say that a slightly more value-oriented path may be ahead for Associated Banc-Corp stock in the near term too.

P/CF Ratio

An often overlooked ratio that can still be a great indicator of value is the price/cash flow metric. This ratio doesn’t take amortization and depreciation into account, so can give a more accurate picture of the financial health in a business.This is a preferred metric to some valuation investors because cash flows are (a) generally less prone to manipulation by the company’s management and (b) are less affected by variation in accounting policies between different companies.

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. However, it is not commonly used for cross-industry comparison, as the average price to cash flow ratio varies from industry to industry.

In this case, Associated Banc-Corp’s P/CF ratio of 12.22 is lower than the Zacks classified Banks – Midwest industry average of 20.42, which indicates that the stock is somewhat undervalued in this respect.

Broad Value Outlook

In aggregate, Associated Banc-Corp 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 Associated Banc-Corp a solid choice for value investors, and some of its other key metrics make this pretty clear too.

For example, its P/CF ratio comes in at 5.41, which is far better than the industry average of 12.06. Clearly, ASB is a solid choice on the value front from multiple angles.

What About the Stock Overall?

Though Associated Banc-Corp 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 ASB 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 earnings estimates have been disappointing. The full year estimate has seen one upward revision and one downward revision over the past 60 days.

This has had just a small impact on the consensus estimate though as the full year estimate has inched lower by 0.7%. You can see the consensus estimate trend and recent price action for the stock in the chart below:

Associated Banc-Corp Price and Consensus

 

Associated Banc-Corp Price and Consensus | Associated Banc-Corp Quote

This 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

Associated Banc-Corp is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. Moreover, a strong industry rank (Top 25% out of more than 250 industries) further supports the growth potential of the stock.  In fact, over the past one year, the Zacks Computer-Mini industry has clearly outperformed the broader market, as you can see below:

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

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