market capitalization – Medielys http://medielys.com/ Thu, 20 Jan 2022 18:13:53 +0000 en-US hourly 1 https://wordpress.org/?v=5.9.3 https://medielys.com/wp-content/uploads/2021/08/favicon-2-150x150.png market capitalization – Medielys http://medielys.com/ 32 32 Ageson plans share consolidation and rights issue to raise up to RM179m https://medielys.com/2022/01/19/ageson-plans-share-consolidation-and-rights-issue-to-raise-up-to-rm179m/ Wed, 19 Jan 2022 16:55:35 +0000 https://medielys.com/2022/01/19/ageson-plans-share-consolidation-and-rights-issue-to-raise-up-to-rm179m/ KUALA LUMPUR (January 19): Ageson Bhd (formerly known as Prinsiptek Corp Bhd) intends to raise up to RM179.09 million – more than three times its market capitalization of RM55 million – by through a stock consolidation and a rights issue. In a filing, the construction and real estate company said it plans to consolidate 15 […]]]>

KUALA LUMPUR (January 19): Ageson Bhd (formerly known as Prinsiptek Corp Bhd) intends to raise up to RM179.09 million – more than three times its market capitalization of RM55 million – by through a stock consolidation and a rights issue.

In a filing, the construction and real estate company said it plans to consolidate 15 existing shares into a single share.

For illustration, based on the company’s last traded market price of 4.5 sen per share on January 17, the adjusted reference price would be 67.5 sen, after consolidation.

Ageson will then proceed with a capital increase with waiver rights of a maximum of 716.35 million new shares on the basis of two rights shares for one consolidated share, on a date to be determined later.

The issue price will also be announced at a later date. For illustrative purposes, based on the indicative issue price of 25 sen per rights share, the proposed rights issue is expected to raise gross proceeds of up to RM179.09 million.

Of the total proceeds, the group intends to allocate up to RM132.67 million to fund its future property development and construction projects and investments in businesses complementary to its existing business.

Up to RM40.99 million will be used for repayment of bank debt, with RM5 million allocated for working capital requirement and RM430,000 for business related expenses.

Previously, the group had, on November 29, 2021, completed a private placement raising RM13 million to repay the amount owed to RHB Bank.

Ageson had in October last year scrapped plans to issue convertible unsecured unsecured loan (ICULS) equity rights due to the “expected longer time frame” needed for the company to complete the financial year.

The rights issue of up to 12.78 billion ICULS was expected to raise approximately RM319.55 million, of which Ageson planned to use RM302.89 million to part fund a development project for use mixed in Perak with an estimated gross development value of RM1. .24 billion.

Ageson’s share price fell 22.22% or one sen to 3.5 sen, bringing it a market capitalization of RM55 million.

The stock was among the top 10 actively traded on Bursa Malaysia, with volume reaching 62.56 million shares from 2.23 million shares on January 17.

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Hannon Armstrong Sustainable Infrastructure Stock: Unsustainable premium to book value https://medielys.com/2022/01/12/hannon-armstrong-sustainable-infrastructure-stock-unsustainable-premium-to-book-value/ Wed, 12 Jan 2022 18:23:00 +0000 https://medielys.com/2022/01/12/hannon-armstrong-sustainable-infrastructure-stock-unsustainable-premium-to-book-value/ LeoPatrizi/E+ via Getty Images Hannon Armstrong (NYSE:HASI) is a mortgage REIT that provides financing for various types of green projects. They were one of the first to go into space and they are very good at it. I like the business and think there are many opportunities in green finance. Unfortunately, the valuation of HASI […]]]>

LeoPatrizi/E+ via Getty Images

Hannon Armstrong (NYSE:HASI) is a mortgage REIT that provides financing for various types of green projects. They were one of the first to go into space and they are very good at it. I like the business and think there are many opportunities in green finance. Unfortunately, the valuation of HASI is excessively high, so it is actually a dangerous investment.

The Sell thesis

The nature of the mREIT business is such that the market price must always be anchored approximately around book value. The market seems to have gotten caught up in the excitement of HASI’s environmental talk and has forgotten the basics of mREIT valuation. HASI is trading at 3.13 times its book value. In this article, I intend to show that even though their investments perform extremely well, there is no reasonable outcome in which they are worth HASI’s market capitalization.

It’s not about whether they are good investments. Even with extremely optimistic forecasts, they simply cannot be worth 3.13 times the book. It is a matter of the structure being such that their value is capped.

Book value and REITs

Book value is a tricky concept with REITs. For equity REITs, this is an almost meaningless metric because properties are depreciated to 0 on the balance sheet, making the book value in no way reflective of the true value of the asset. .

Mortgage REITs are different. Loans are usually carried at face value or some measure of fair value, with companies often reporting both. Face value and fair value are useful measures for mREITs and provide an excellent guide for valuation.

mREIT anchored near book value

There are different types of mREITs such as agency mREITs, CRE mREITs, and private equity style mREITs, but they all have one thing in common: a valuation peg at approximately book value.

In fact, mREITs used to be part of the financial industry until they were phased out along with equity REITs in the 11e GICS sector.

These non-bank lenders all tend to trade around book value as shown below

Company (symbol)

To preserve

AGNC Investment (AGNC)

0.90

Annaly Capital (NLY)

0.98

New Residential Investment Company (NRZ)

0.99

Two ports (TWO)

0.92

Chimera (CIM)

0.94

Blackstone Mortgage Trust (BXMT)

1.16

KKR Real Estate Financing (NYSE: KREF)

1.11

Capital Loan (RC)

1.12

Data from SNL Financial

The list above includes both large and small companies as well as those with excellent reputations and those that have made mistakes.

Why such uniformity of valuation despite great differences between companies?

Well, there is an underlying mechanism that anchors a lender’s value to book value and it’s quite simple.

Loans tend to recoup the capital invested plus interest. The interest is proportional to the risk level of the loan. So, by lending $1,000, you recover a risk of $1,000 plus interest which has a risk-adjusted present value of about $1,000. Loans can go horribly wrong so you get $0 back, but there is no mechanism by which a loan can be a home run.

If the loan goes perfectly, you only get back the capital plus interest.

Given this capped return, it would be pretty silly to pay $3,000 for the receivables stream of a $1,000 loan and yet that’s what happens with HASI.

Unrealistic HASI valuation

Here is the Vital Statistics form on which I am basing this argument

Graphical user interface, table Description automatically generated with medium confidence

Statistics

SNL Financial

Thus, the enterprise value shown above of $6.5 billion offsets the cash and cash equivalents of the $2.467 billion in liabilities plus $4.561 billion in market capitalization. This means that to justify the current valuation, the assets, including cash, must be worth just over $7 billion.

Now let’s take a look at the strengths of the business.

Background pattern Description automatically generated

Balance sheet

10-Q

Assets of $3.9 billion are quite a far cry from the $7 billion. Let’s dig into the major line items to see if any of them might be worth much more than they carry on the balance sheet.

  • $413 million of cash and cash equivalents is worth $413 million.

The other significant items are receivables and equity investments using the equity method.

To estimate the real value of these, we need to know how HASI accounts for them. Here is their description of the 10-Q

“Investments are debt securities that meet the criteria of ASC 320, Investments – Debt and equity securities. We have designated our debt securities as available for sale and carry these securities at fair value on our balance sheet.

HASI also provided the following table:

Background pattern Description automatically generated

HASI Investments

HASI

Source: 10-Q

If the loans perform perfectly, they would functionally recover that $39 million loss provision. Even still, that brings it to just over $1.4 billion.

We should also attribute some value to embedded interest payments. A HASI bull might argue that since many of these loans are functionally super senior within the debtor’s capital stack, the level of risk is very low compared to the 5%+ interest rates on these loans. .

As such, HASI got a better deal than the market and so there would be a positive risk-adjusted present value on the interest payments.

I think there is some validity to this argument, but there is also risk on the other side with long-term, fixed-rate interest payments in a rising rate environment.

The 10-year Treasury yield just hit 1.668% and is expected to rise with the Fed’s tapering and hikes coming later this year.

Overall I think HASI is getting a better than average deal on their loan book so one could spot the fair value a bit higher than the balance sheet but the difference would be in the tens of millions, not in the hundreds of millions.

As such, the loan portion of HASI fits the mREIT profile perfectly in that it must be firmly anchored to book value.

A little more leeway in investments using the equity method

Equity investments, as opposed to loan investments, may fluctuate somewhat more in value with the performance of the underlying asset. As such, if there is a bucket in which HASI’s book value underestimates the actual value, this would be it.

As of 9/30/21, HASI held $1.468 billion in investments under the equity method. Here is how HASI counts them:

“Our investments in renewable energy or energy efficiency projects are accounted for using the equity method. Under the equity method, the carrying value of these equity-accounted investments is determined based on the amounts we have invested, adjusted for equity in the profit or loss of the investee allocated based on the LLC agreement, less distributions received.

In short, they are recorded at cost with cash flow type adjustments. Thus, the delta between the real value and the book value of this item would be the change in the fair value of the instrument beyond the cash flows it generated.

So, let’s look at investments using the equity method.

Automatically generated table description

Investments under the equity method

HASI

The largest is Jupiter Equity Holdings, a company that owns nine operating wind farms producing about 2.3 gigawatts. HASI contributed $540 million to the project in July 2020.

It was a good time to build renewables because the performance metrics look solid. This deal is made more secure with power supply deals already under long-term contract, so I suspect it will cash in well. That said, there are two factors that I believe limit how much this could have appreciated beyond book value:

  1. July 2020 is not that far away.
  2. HASI has a preferred interest in the project rather than a common tranche. Thus, its cash flow is more secure, but the upside is also reduced.

Lighthouse Partnerships is a similar investment in that HASI holds a preferred tranche in a large solar and wind project. HASI’s total investment is expected to be $663 million, but as of 9/30/21, only $219 million has been invested.

This too looks like a lucrative investment, but it is still in its infancy. Given recency and prime tier, I suspect fair value is only slightly north of invested capital.

HASI does everything right and every investment it makes seems to be relevant. I particularly like how they structure their trades so that they are so high in the capital stack that their returns are near AA caliber.

Even their equity investments are structured with a preferential yield which greatly increases HASI’s chances of profitability in the companies.

It’s a conservative company with the expertise in green financing to get the right deals with the right partners. I strongly believe that they will consistently generate strong IRR at relatively low risk. If the company was trading at around book value, I’d be happy to stock up on stocks.

A simple case of overvaluation

The challenge with HASI’s current valuation at 3.13X Pound is that given the conservative nature of their investments, it is absurd to value them so highly. A conservative lender simply cannot triple their money in just a few years.

On each of the HASI investments that I have reviewed, I believe they got a good deal, making the present value of these investments perhaps 10% or even 20% greater than their invested capital.

As such, the $7 billion valuation is absurd. Given that the capital has been so well invested, I think the $3.2 billion invested by HASI as of 9/30/21 is probably worth around $3.6 billion. Adding the $413 million in cash and cash equivalents, I would see the asset value at $4.13 billion.

Don’t pay $7 billion for $4.13 billion

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Buy these 5 price-to-book stocks in 2022 for gains https://medielys.com/2022/01/07/buy-these-5-price-to-book-stocks-in-2022-for-gains/ Fri, 07 Jan 2022 14:09:00 +0000 https://medielys.com/2022/01/07/buy-these-5-price-to-book-stocks-in-2022-for-gains/ Value investors have, over the years, favored the price / earnings or P / E ratio as a way to identify value stocks. However, in the case of loss-making companies that have a negative price-to-earnings ratio, the price-to-sales or P / S ratio is taken into account to determine their true value. However, the price-to-book […]]]>

Value investors have, over the years, favored the price / earnings or P / E ratio as a way to identify value stocks. However, in the case of loss-making companies that have a negative price-to-earnings ratio, the price-to-sales or P / S ratio is taken into account to determine their true value.

However, the price-to-book ratio (P / N ratio), while used less often, is also an easy-to-use valuation tool for identifying low-priced stocks with good returns.

The P / B ratio is calculated as below:

P / B ratio = market capitalization / book value of equity

The P / B ratio helps identify low-priced stocks that have high growth prospects. Ford Motor Company F, General Motors Society DG, Invesco IVZ, DXC Technology Company DXC and Atlas Corp. ATCO are just a few of those choices.

What is book value?

There are several ways to define the book value. Book value is the total value that would remain, according to the company’s balance sheet, in the event of immediate bankruptcy. In other words, this is what shareholders would theoretically receive if a company liquidated all of its assets after paying off all of its liabilities.

It is calculated by subtracting total liabilities from total assets of a business. In most cases, this is equivalent to common shareholders’ equity on the balance sheet. However, according to the company’s balance sheet, intangible assets must also be subtracted from total assets to determine the book value.

Understanding the P / B Ratio

By comparing the book value of equity to its market price, we get an idea of ​​whether a company is undervalued or overvalued. However, like the P / E or P / S ratio, it is always best to compare P / N ratios within industries.

An AP / E ratio of less than one means the stock is trading below its book value or the stock is undervalued and therefore is a good buy. Conversely, a stock with a ratio greater than one can be interpreted as being overvalued or relatively expensive.

For example, a stock with a P / N ratio of 2 means we pay $ 2 for every $ 1 of book value. Thus, the higher the P / B, the more expensive the action.

But there is a caveat. An AP / E ratio of less than one can also mean that the company is generating low or even negative returns on its assets or that the assets are overvalued, in which case the stock should be avoided as it can destroy shareholder value. Conversely, the share price can be significantly high – thus pushing the P / B ratio to more than one – in the probable event that it has become a takeover target, reason enough to hold the share. ‘action.

In addition, the P / B ratio is not without limits. It is useful for businesses – like finance, investment, insurance, and banking or manufacturing companies – with many liquid / tangible assets on the books. However, this can be misleading for companies with large R&D spending, high debt, service companies, or those with negative profits.

In any case, the ratio is not particularly relevant as a stand-alone number. One should analyze other ratios such as P / E, P / S and debt / equity before making a reasonable investment decision.

Screening parameters

Price to Book (Common Equity) below the X-Industry median: A lower P / B than the industry average implies that there is enough room for the stock to win.

Sales price below the X-Industry median: The P / S ratio determines the market value for every dollar of the company’s sales / revenue – a lower ratio than the industry makes the stock attractive.

Price / profit using an F (1) estimate lower than the X-Industry median: The P / E (F1) ratio values ​​a company based on its current stock price relative to its estimated earnings per share – a lower ratio than the industry is considered better.

PEG less than 1: The PEG relates the P / E ratio to the company’s future growth rate. The PEG ratio gives a more complete picture than the P / E ratio. A value less than 1 indicates that the stock is undervalued and that investors should pay less for a stock that has good prospects for earnings growth.

Current price greater than or equal to $ 5: They must all trade at a minimum of $ 5 or more.

Average volume over 20 days greater than or equal to 100,000: A substantial trading volume ensures that the stock is easily tradable.

Rank of Zacks less than or equal to # 2: Zacks Rank # 1 (Strong Buy) or 2 (Buy) stocks are known to outperform regardless of the market environment.

Value Note Equal to A or B: Our research shows that stocks with a value score of A or B, when combined with a Zacks # 1 or 2 ranking, offer the best opportunities in the value investing space.

Here are our five choices among the 12 actions that qualified the screening:

Ford Motor Company designs, manufactures, markets and services Lincoln cars, trucks, sport utility vehicles, electrified vehicles and luxury vehicles.

Ford Motor has a projected 3 to 5 year EPS growth rate of 24.7%. Ford Motor currently has a Zacks # 1 ranking and a value score of A. You can see The full list of today’s Zacks # 1 Rank stocks here.

Invesco acts as an independent investment manager and offers a wide range of investment products and services. As of September 30, 2021, Invesco had offices in more than 20 countries and assets under management worth $ 1.53 trillion.

Invesco currently has a Zacks Rank # 2 and a Value Score of A. Invesco has a projected 3 to 5 year EPS growth rate of 13.5%.

General Motors Company is one of the largest automobile manufacturers in the world. The leading U.S. automaker aims to spend more than $ 27 billion by 2025 to launch next-generation electric vehicles powered by new, low-cost batteries. General Motors plans to roll out 11 new electric vehicles as part of its ambitious plans through 2025, including at least 20 new models by 2023.

General Motors has a Zacks Rank # 2 and a Value Score of A. Celestica has a 3 to 5 year projected EPS growth rate of 9.9%.

DXC Technology Company provides information technology services and solutions primarily in North America, Europe, Asia and Australia. DXC Technology Company has a Zacks Rank # 2 and a Value Score of A.

DXC Technology Company was formed by the amalgamation of Computer Sciences Corporation (“CSC”) and the Enterprise Services Division of Hewlett Packard Enterprise (“HPE”), which was completed on April 1, 2017. DXC Technology Company a a forecast of 3-5- annual EPS growth rate of 27.4%.

Atlas Corp. is an asset management company, which operates as an independent owner and manager of container ships.

Atlas Corp. has a projected 3 to 5 year EPS growth rate of 27.9%. Atlas Corp. currently has a Zacks Rank # 1 and a Value Score of A.

Get the rest of the actions on the list and start testing this idea and others. All of this can be done with Research Wizard stock picking and backtesting software.

The Research Assistant is a great place to start. It’s easy to use. Everything is in plain language. And it’s very intuitive. Start your research assistant trial today. And the next time you read an economic report, open the research assistant, plug in your findings, and see what gems come out of it.

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

Disclosure: Officers, directors and / or employees of Zacks Investment Research may own or have sold securities short and / or hold long and / or short positions in options mentioned in this document. An affiliated investment advisory firm may own or have sold securities short and / or hold long and / or short positions in options mentioned in this document.

Disclosure: Information on the performance of Zacks’ portfolios and strategies can be found at: https://www.zacks.com/performance

Boom in infrastructure stocks will sweep America

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Zacks published a special report to help you do just that, and today it’s free. Discover 7 special companies looking to make the most of the construction and repair of roads, bridges and buildings, as well as transporting goods and transforming energy on an almost unimaginable scale.

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Ford Motor Company (F): Free Stock Analysis Report

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To read this article on Zacks.com, click here.

Zacks investment research

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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Buy These 5 Stock Price / Book Value in 2022 for Gains – January 7, 2022 https://medielys.com/2022/01/07/buy-these-5-stock-price-book-value-in-2022-for-gains-january-7-2022/ Fri, 07 Jan 2022 13:33:10 +0000 https://medielys.com/2022/01/07/buy-these-5-stock-price-book-value-in-2022-for-gains-january-7-2022/ [ad_1] Value investors have, over the years, favored the price / earnings or P / E ratio as a way to identify value stocks. However, in the case of loss-making companies that have a negative price-to-earnings ratio, the price-to-sales or P / S ratio is taken into account to determine their true value. However, the […]]]>


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Value investors have, over the years, favored the price / earnings or P / E ratio as a way to identify value stocks. However, in the case of loss-making companies that have a negative price-to-earnings ratio, the price-to-sales or P / S ratio is taken into account to determine their true value.

However, the price-to-book ratio (P / N ratio), while used less often, is also an easy-to-use valuation tool for identifying low-priced stocks with good returns.

The P / B ratio is calculated as below:

P / B ratio = market capitalization / book value of equity

The P / B ratio helps identify low-priced stocks that have high growth prospects. Ford Motor Company (F Free report), General Motors Society (DG Free report), Invesco (IVZ Free report), DXC Technology Company (DXC Free report) and Atlas Corp. (ATCO Free Report) are just a few of those choices.

What is book value?

There are several ways to define the book value. Book value is the total value that would remain, according to the company’s balance sheet, in the event of immediate bankruptcy. In other words, this is what shareholders would theoretically receive if a company liquidated all of its assets after paying off all of its liabilities.

It is calculated by subtracting total liabilities from total assets of a business. In most cases, this is equivalent to common shareholders’ equity on the balance sheet. However, according to the company’s balance sheet, intangible assets must also be subtracted from total assets to determine the book value.

Understanding the P / B Ratio

By comparing the book value of equity to its market price, we get an idea of ​​whether a company is undervalued or overvalued. However, like the P / E or P / S ratio, it is always best to compare P / N ratios within industries.

An AP / E ratio of less than one means the stock is trading below its book value or the stock is undervalued and therefore is a good buy. Conversely, a stock with a ratio greater than one can be interpreted as being overvalued or relatively expensive.

For example, a stock with a P / N ratio of 2 means we pay $ 2 for every $ 1 of book value. Thus, the higher the P / B, the more expensive the action.

But there is a caveat. An AP / E ratio of less than one can also mean that the company is generating low or even negative returns on its assets or that the assets are overvalued, in which case the stock should be avoided as it can destroy shareholder value. Conversely, the share price can be significantly high – thus pushing the P / B ratio to more than one – in the probable event that it has become a takeover target, reason enough to hold the share. ‘action.

In addition, the P / B ratio is not without limits. It is useful for businesses – like finance, investment, insurance, and banking or manufacturing companies – with many liquid / tangible assets on the books. However, this can be misleading for companies with large R&D spending, high debt, service companies, or those with negative profits.

In any case, the ratio is not particularly relevant as a stand-alone number. One should analyze other ratios such as P / E, P / S and debt / equity before making a reasonable investment decision.

Screening parameters

Price to Book (Common Equity) below the X-Industry median: A lower P / B than the industry average implies that there is enough room for the stock to win.

Sales price below the X-Industry median: The P / S ratio determines the market value for every dollar of the company’s sales / revenue – a lower ratio than the industry makes the stock attractive.

Price / profit using an F (1) estimate lower than the X-Industry median: The P / E (F1) ratio values ​​a company based on its current stock price relative to its estimated earnings per share – a lower ratio than the industry is considered better.

PEG less than 1: The PEG relates the P / E ratio to the company’s future growth rate. The PEG ratio gives a more complete picture than the P / E ratio. A value less than 1 indicates that the stock is undervalued and that investors should pay less for a stock that has good prospects for earnings growth.

Current price greater than or equal to $ 5: They must all trade at a minimum of $ 5 or more.

Average volume over 20 days greater than or equal to 100,000: A substantial trading volume ensures that the stock is easily tradable.

Rank of Zacks less than or equal to # 2: Zacks Rank # 1 (Strong Buy) or 2 (Buy) stocks are known to outperform regardless of the market environment.

Value Score Equal to A or B: Our research shows that stocks with a value score of A or B, when combined with a Zacks # 1 or 2 ranking, offer the best opportunities in the investment space. valuable.

Here are our five choices among the 12 actions that qualified the screening:

Ford Motor Company designs, manufactures, markets and services Lincoln cars, trucks, sport utility vehicles, electrified vehicles and luxury vehicles.

Ford Motor has a projected 3 to 5 year EPS growth rate of 24.7%. Ford Motor currently has a Zacks Rank # 1 and Value Score of A. You can see the full list of Zacks # 1 Rank stocks today here.

Invesco acts as an independent investment manager and offers a wide range of investment products and services. As of September 30, 2021, Invesco had offices in more than 20 countries and assets under management worth $ 1.53 trillion.

Invesco currently has a Zacks Rank # 2 and a Value Score of A. Invesco has a projected 3 to 5 year EPS growth rate of 13.5%.

General Motors Company is one of the largest automobile manufacturers in the world. The leading U.S. automaker aims to spend more than $ 27 billion by 2025 to launch next-generation electric vehicles powered by new, low-cost batteries. General Motors plans to roll out 11 new electric vehicles as part of its ambitious plans through 2025, including at least 20 new models by 2023.

General Motors has a Zacks Rank # 2 and a Value Score of A. Celestica has a 3 to 5 year projected EPS growth rate of 9.9%.

DXC Technology Company provides information technology services and solutions primarily in North America, Europe, Asia and Australia. DXC Technology Company has a Zacks Rank # 2 and a Value Score of A.

DXC Technology Company was formed by the amalgamation of Computer Sciences Corporation (“CSC”) and the Enterprise Services Division of Hewlett Packard Enterprise (“HPE”), which was completed on April 1, 2017. DXC Technology Company a a forecast of 3-5- annual EPS growth rate of 27.4%.

Atlas Corp. is an asset management company, which operates as an independent owner and manager of container ships.

Atlas Corp. has a projected 3 to 5 year EPS growth rate of 27.9%. Atlas Corp. currently has a Zacks Rank # 1 and a Value Score of A.

Get the rest of the actions on the list and start testing this idea and others. All of this can be done with Research Wizard stock picking and backtesting software.

The Research Assistant is a great place to start. It’s easy to use. Everything is in plain language. And it’s very intuitive. Start your research assistant trial today. And the next time you read an economic report, open the research assistant, plug in your findings, and see what gems come out of it.

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

Disclosure: Officers, directors and / or employees of Zacks Investment Research may own or have sold securities short and / or hold long and / or short positions in options mentioned in this document. An affiliated investment advisory firm may own or have sold securities short and / or hold long and / or short positions in options mentioned in this document.

Disclosure: Information on the performance of Zacks’ portfolios and strategies can be found at: https://www.zacks.com/performance

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Buy These 5 Price-to-Book Value Stocks in 2022 for Gains https://medielys.com/2022/01/07/buy-these-5-price-to-book-value-stocks-in-2022-for-gains/ Fri, 07 Jan 2022 08:00:00 +0000 https://medielys.com/2022/01/07/buy-these-5-price-to-book-value-stocks-in-2022-for-gains/ Value investors have over the years preferred the price-to-earnings or P/E ratio as a way to identify value-oriented stocks. However, in the case of loss-making companies that have a negative price-to-earnings ratio, the price-to-sales or P/S ratio is taken into account to determine their true value. However, the price-to-book ratio (P/B ratio), although used less […]]]>

Value investors have over the years preferred the price-to-earnings or P/E ratio as a way to identify value-oriented stocks. However, in the case of loss-making companies that have a negative price-to-earnings ratio, the price-to-sales or P/S ratio is taken into account to determine their true value.

However, the price-to-book ratio (P/B ratio), although used less often, is also an easy-to-use valuation tool for identifying low-priced stocks with excellent returns.

The P/B ratio is calculated as follows:

P/B ratio = market capitalization / book value of equity

The P/B ratio helps identify low-priced stocks that have high growth prospects. Ford Motor Company F, General Motors Society GM, Invesco IVZ, DXC Technology Company DXC and Atlas Corp. ATCO are some of those choices.

What is the book value?

There are several ways to define book value. Book value is the total value that would remain, according to the company’s balance sheet, if it went bankrupt immediately. In other words, it’s what shareholders would theoretically receive if a company liquidated all of its assets after settling all of its liabilities.

It is calculated by subtracting the total liabilities from the total assets of a business. In most cases, this equates to common shareholders’ equity on the balance sheet. However, according to the company’s balance sheet, intangible assets must also be subtracted from total assets to determine book value.

Understanding the P/B ratio

By comparing the book value of equity to its market price, we get an idea if a company is undervalued or overvalued. However, like the P/E or P/S ratio, it is always best to compare P/B ratios within industries.

An AP/B ratio of less than one means the stock is trading at a price below its book value, or the stock is undervalued and therefore a good buy. Conversely, a stock with a ratio greater than one can be interpreted as being overvalued or relatively expensive.

For example, a stock with a P/B ratio of 2 means we pay $2 for every $1 of book value. Thus, the higher the P/B, the more expensive the stock.

But there is a caveat. An AP/B ratio of less than one can also mean that the company is getting low or even negative returns on its assets or that the assets are overvalued, in which case the stock should be avoided as it can destroy shareholder value. Conversely, the stock price can be significantly high – thus pushing the P/B ratio to more than one – in the likely event that it has become a buyout target, reason enough to hold the stock. .

Moreover, the P/B ratio is not without limits. It is useful for businesses – like finance, investments, insurance and banking or manufacturing companies – with many liquid/tangible assets on the books. However, this can be misleading for companies with large R&D expenses, high debt, service companies, or those with negative earnings.

In any case, the ratio is not particularly relevant as a stand-alone number. Other ratios such as P/E, P/S and debt/equity should be analyzed before making a reasonable investment decision.

Screening Parameters

Price to Book (common Equity) below the X-Industry median: A lower P/B relative to the industry average implies that there is enough room for the stock to win.

Selling price below median X-Industry: The P/S ratio determines how much the market values ​​each dollar of the company’s sales/revenue – a lower ratio than the industry makes the stock attractive.

Price/earnings ratio using F(1) estimate below industry median X: The P/E (F1) ratio values ​​a company based on its current share price relative to its estimated earnings per share – a lower ratio than the industry is considered better.

PEG less than 1: The PEG relates the P/E ratio to the future growth rate of the company. The PEG ratio gives a more complete picture than the P/E ratio. A value below 1 indicates the stock is undervalued and investors should pay less for a stock that offers good earnings growth prospects.

Current price greater than or equal to $5: They must all trade at a minimum of $5 or more.

Average volume over 20 days greater than or equal to 100,000: Substantial trading volume ensures that the stock is easily tradable.

Zacks rating less than or equal to #2: Zacks Rank #1 (Strong Buy) or 2 (Buy) stocks are known to outperform regardless of the market environment.

Value Score of A or B: Our research shows that stocks with a Value Score of A or B, when combined with a Zacks #1 or 2 ranking, offer the best opportunities in the investment space valuable.

Here are our five picks from the 12 stocks that qualified the selection:

Ford Motor Company designs, manufactures, markets and services Lincoln cars, trucks, sport utility vehicles, electrified vehicles and luxury vehicles.

Ford Motor forecasts an EPS growth rate of 24.7% over 3 to 5 years. Ford Motor currently has a Zacks Rank #1 and a Value Score of A. You can see the full list of today’s Zacks Rank #1 stocks here.

Invesco operates as an independent investment manager and offers a wide range of investment products and services. As of September 30, 2021, Invesco had offices in over 20 countries and an AUM worth $1.53 trillion.

Invesco currently has a Zacks No. 2 ranking and a value score of A. Invesco has an expected EPS growth rate of 13.5% over 3-5 years.

General Motors Company is one of the largest automobile manufacturers in the world. The top US automaker aims to spend more than $27 billion through 2025 to launch next-generation electric vehicles powered by new low-cost batteries. General Motors plans to roll out 11 new electric vehicles as part of its ambitious plans through 2025, including at least 20 new models by 2023.

General Motors has a Zacks rank of No. 2 and a value score of A. Celestica has an expected 3-5 year EPS growth rate of 9.9%.

DXC Technology Company provides information technology services and solutions primarily in North America, Europe, Asia and Australia. DXC Technology Company has a Zacks Rank #2 and a Value Score of A.

DXC Technology Company was formed by the merger of Computer Sciences Corporation (“CSC”) and the business services division of Hewlett Packard Enterprise (“HPE”), which was completed on April 1, 2017. DXC Technology Company has a forecast of 3-5-year EPS growth rate of 27.4%.

Atlas Corp. is an asset management company, which operates as an independent charterer and manager of container ships.

Atlas Corp. forecast an EPS growth rate of 27.9% over 3 to 5 years. Atlas Corp. currently has a Zacks rank #1 and a value score of A.

Get the rest of the stocks on the list and start testing this idea and others. All of this can be done with Research Wizard stock picking and back testing software.

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Disclosure: Officers, directors and/or employees of Zacks Investment Research may own or have sold securities short and/or hold long and/or short positions in the options mentioned herein. An affiliated investment advisory firm may hold or have shorted securities and/or hold long and/or short positions in options mentioned herein.

Disclosure: Information on the performance of Zacks portfolios and strategies is available at: https://www.zacks.com/performance

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Berkshire Hathaway Q4 2021 earnings and book value estimates could crush S&P in 2022 https://medielys.com/2022/01/06/berkshire-hathaway-q4-2021-earnings-and-book-value-estimates-could-crush-sp-in-2022/ Thu, 06 Jan 2022 08:00:00 +0000 https://medielys.com/2022/01/06/berkshire-hathaway-q4-2021-earnings-and-book-value-estimates-could-crush-sp-in-2022/ Mark Wilson/Getty Images News Berkshire Hathaway (BRK.A) (BRK.B) continues to swim in the money. Berkshire left the third quarter with $149 billion, down from $144 billion on June 30 despite repurchasing $7.6 billion of stock in the quarter. Data by YCharts Slowly but surely, these share buybacks are having a real impact. Data by YCharts […]]]>

Mark Wilson/Getty Images News

Berkshire Hathaway (BRK.A) (BRK.B) continues to swim in the money. Berkshire left the third quarter with $149 billion, down from $144 billion on June 30 despite repurchasing $7.6 billion of stock in the quarter.

Berkshire Hathaway stock price
Data by YCharts

Slowly but surely, these share buybacks are having a real impact.

Berkshire Hathaway Shares Outstanding
Data by YCharts

In the fourth quarter, I expect another strong quarter from Berkshire’s operations as the equity portfolio continues to grow.

Fourth Quarter Holdings Update

The value of Berkshire’s investments in non-Kraft Heinz (KHC) equity securities has risen 12.3% to $334.5 billion from $297.7 billion last quarter, most of which came from Apple (AAPL). Again.

Berkshire Hathaway valuation in Q4 2021

From the gain of $36.8 billion, after increasing the future tax liability on the balance sheet as “income taxes, primarily deferred” and subtracting 21%, we see a net book value gain of 29 billion for the fourth quarter.

Fourth quarter operating profit

Berkshire Hathaway Q4 2021 Operating Results

Fourth quarter operating results should again be strong, if almost boring in consistency.

Insurance underwriting should produce a small gain. The Atlantic hurricane season ended quietly, but lingering claims from Hurricanes Ida and Harvey could impact the fourth quarter, along with rising auto claims as more drivers get back on the road.

I will estimate a $300 million gain for this quarter.

Assurance investment income should happen $1.2 billion. The $1 billion slide in interest rate cuts on short-term debt is fully annualized at this point and could improve if the Fed raises rates. Investment income should be higher in the coming quarters.

Rail, Utilities and Energy should show gains over last year. Rail volumes at BNSF is flat or slightly down from last quarter but up 7% from last year. For BHE, the fourth quarter is a weaker seasonal period, but there is much more economic activity this fourth quarter than the last.

I estimate $2.5 billion in the income of this group.

Other companies containing dozens of companies like Precision Castparts, Lubrizol, Marmon and other industrial companies, should post year-over-year gains, although I expect supply chain disruptions and rising raw material prices are again affecting profitability this quarter. I expect many of these costs to be passed on to end customers next year.

I will estimate $2.7 billion income again from this group.

Other should produce a $500 million Gain as equity gains from Kraft Heinz and Pilot, along with the continued strength of the U.S. dollar, offset the usual expenses (mainly amortization of past acquisitions.)

In total, I expect fourth quarter operating profit to be around $7.2 billion and an annual operating profit of $27.3 billion.

Current book value

As reported in 2021 Berkshire Q3 10-Q the book value as of September 30, 2021 was $472 billion.

Adding the $29 billion net gain from equity investments to $7.2 billion in operating profit, I project the Q4-21 book value to $508 billion.

Berkshire Hathaway price at book value

Berkshire’s market capitalization as of December 31 was $668 billion. Dividing that by $508 billion yields a price/book value of 1.31x for Q4.

Outlook and recommendations for 2022

Berkshire Hathaway even traded with the S&P 500 (including dividends) in 2021, but is off to a fast start in 2022.

Although I have opined on Berkshire’s valuation in this series, I have never made a prediction on Berkshire’s stock price relative to the broader S&P 500 Index. Until now. I believe Berkshire crushes the S&P 500 in 2022 and outperforms the index by 15% or more.

The return of Berkshire Hathaway
Data by YCharts

Why? Evaluation. Now that the Fed is tightening, I think this is the first year in a long time that valuation is back in focus. I expect, and am personally positioned for, a rotation from high tech multiples to lower tech multiples, and I think Berkshire is uniquely positioned to benefit from this.

While I’m not predicting a recession or anything drastic, I can absolutely see a scenario in which the S&P 500 ends the year flat, with value stocks appreciating 20% ​​and multiple tech stocks high decreasing by a similar amount.

Berkshire Hathaway price at book value
Data by YCharts

Remember that Berkshire traded around 1.5 times the pound for much of 2017-19. I think we could get back to that range in 2022.

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Three sectors of the all-cap index are trading below economic book value after 3Q21 https://medielys.com/2021/12/17/three-sectors-of-the-all-cap-index-are-trading-below-economic-book-value-after-3q21/ Fri, 17 Dec 2021 08:00:00 +0000 https://medielys.com/2021/12/17/three-sectors-of-the-all-cap-index-are-trading-below-economic-book-value-after-3q21/ Hand pointing at stock chart. Getty This report is a free, abridged version of All Cap Index & Sectors: Price to Economic Book Value Through 3Q21, one of my quarterly series on fundamental market and sector trends. Key points: The back PEBV ratio for the NC 2000[1]my company’s all-cap index, fell from 1.7 in 3Q20 […]]]>

This report is a free, abridged version of All Cap Index & Sectors: Price to Economic Book Value Through 3Q21, one of my quarterly series on fundamental market and sector trends.

Key points:

  • The back PEBV ratio for the NC 2000[1]my company’s all-cap index, fell from 1.7 in 3Q20 to 1.5 in 3Q21, implying constituent earnings will rise 50% from long-term 3Q21 levels.
  • Investors are the most pessimistic about the outlook for the telecom services sector, where stocks are priced for a 50% drop in earnings from 3Q21 over the long term.
  • The full version of this report analyzes[2],[3] market capitalization, economic book value and price-to-economic book value (PEBV) ratio for NC 2000 and each of its sectors.

The NC 2000 trailing PEBV ratio fell in 3Q21

The trailing PEBV ratio for the NC 2000 fell from 1.7 in 3Q20 to 1.5 in 3Q21. This advanced PEBV ratio compares the expected future earnings of the NC 2000 (incorporated in its equity valuation) to the TTM earnings in 3Q21. At 1.5, the NC 2000 valuation implies NC 2000 stock earnings will rise 50% from 3Q21 levels.

Key details on certain CN 2000 sectors

Among the NC 2000 sectors, telecommunications services, consumer staples and financials are trading below their economic book value and basic materials are trading at their economic book value. The Telecommunications Services sector has the lowest PEBV ratio among the eleven sectors in the All Cap Index based on 11/16/21 prices and 3Q21 10-Qs financial data.

A PEBV ratio of 0.5 means investors expect 3Q21 telecom services sector earnings to decline by 50%. On the other hand, investors expect the real estate sector (PEBV ratio of 3.4) to improve its earnings more than any other sector in the All Cap index.

Below I highlight the health sector.

Example of sector analysis[4]: Health: Lagging PEBV ratio = 1.2

Figure 1 shows that the mobile PEBV ratio for the healthcare sector fell from 1.5 in 3Q20 to 1.2 in 3Q21. The market capitalization of the healthcare sector fell from $5.1 trillion in 3Q20 to $6 trillion in 3Q21, while its economic book value fell from $3.4 trillion in 3Q20 to $5 trillion in 3T21.

Figure 1: PEBV Ratio of Health Care Monitoring: December 1998 – 11/16/21

The November 16, 2021 measurement period uses price data as of that date and incorporates 3Q21 10-Q financial data, as this is the earliest date for which all 3Q21 10-Qs for NC 2000 constituents were available.

Figure 2 compares market capitalization and economic book value trends for the healthcare sector since 1998. I summarize the individual NC 2000/sector values ​​for market capitalization and economic book value. I call this approach the “global” methodology, and it matches the S&P Global (SPGI) methodology for these calculations.

Figure 2: Healthcare Market Capitalization and Economic Book Value: December 1998 – 11/16/21

The November 16, 2021 measurement period uses price data as of that date and incorporates 3Q21 10-Q financial data, as this is the earliest date for which all 3Q21 10-Qs for NC 2000 constituents were available.

The Aggregate methodology provides a simple view of the entire NC 2000/sector, regardless of company size or index weighting, and is the way S&P Global (SPGI) calculates metrics for the S&P500.

For additional perspective, I compare the aggregate method for the trailing PEBV ratio with two other market-weighted methodologies. These market-weighted methodologies add more value to ratios that don’t include market values, eg ROIC and its drivers, but I’m including them here for comparison purposes nonetheless. Each method has its advantages and disadvantages, which are detailed in the appendix.

Figure 3 compares these three methods of calculating rolling PEBV ratios for the Healthcare sector.

Figure 3: PEBV end-of-care ratio methodologies compared: December 1998 – 11/16/21

The November 16, 2021 measurement period uses price data as of that date and incorporates 3Q21 10-Q financial data, as this is the earliest date for which all 3Q21 10-Qs for NC 2000 constituents were available.

Disclosure: David Trainer, Kyle Guske II, and Matt Shuler receive no compensation for writing about a specific stock, style, or theme.

Appendix: Trailing PEBV Ratio Analysis with Different Weighting Methodologies

I derive the above metrics by adding the individual constituent NC 2000/sector values ​​for market capitalization and economic book value to calculate the trailing PEBV ratio. I call this approach the “Aggregate” methodology.

The Aggregate methodology provides a simple view of the entire NC 2000/sector, regardless of company size or index weighting, and is the way S&P Global (SPGI) calculates metrics for the S&P500.

For additional perspective, I compare the aggregate method for the trailing PEBV ratio with two other market-weighted methodologies. These market-weighted methodologies add more value for ratios that don’t include market values, e.g. ROIC and its drivers, but I’m including them here nonetheless, for comparison:

Market-weighted measures – calculated by weighting according to market capitalization the PEBV ratio of individual companies in relation to their sector or the overall NC 2000 at each period. Details:

  1. The weight of the company is equal to the market capitalization of the company divided by the market capitalization of the NC 2000 or its sector
  2. I multiply the PEBV ratio of each company by its weight
  3. The rolling PEBV ratio NC 2000/Sector is equal to the sum of the rolling PEBV ratios weighted for all the companies of the NC 2000/sector

Market-weighted drivers – calculated by weighting the market capitalization and the economic book value of individual companies in each sector at each period. Details:

  1. The weight of the company is equal to the market capitalization of the company divided by the market capitalization of the NC 2000 or its sector
  2. I multiply the market capitalization and the economic book value of each company by its weight
  3. I sum the weighted market capitalization and the weighted economic book value of each company in the NC 2000/each sector to determine the weighted market capitalization of the NC 2000 or the sector and the weighted economic book value
  4. The NC 2000/sector rolling PEBV ratio is equal to the NC 2000/sector weighted market capitalization divided by the NC 2000/sector weighted economic book value

Each methodology has its pros and cons as listed below:

Aggregate method

Benefits:

  • A direct look at the entire NC 2000/sector, whatever the size or weight of the company.
  • Corresponds to how S&P Global calculates metrics for the S&P 500.

The inconvenients:

  • Vulnerable to the impact of companies entering/leaving the corporate group, which could unduly affect overall values. Also sensitive to outliers over a period of time.

Market-weighted measures method

Benefits:

  • Takes into account a company’s market capitalization relative to the NC 2000 sector and weights its measures accordingly.

The inconvenients:

  • Vulnerable to outlying results from a single company have a disproportionate impact on the overall PEBV ratio, as I will show below.

Market-weighted factor method

Benefits:

  • Considers a company’s market capitalization relative to the NC 2000 sector and weights its size and economic book value accordingly.
  • Mitigates the disproportionate impact of a company’s outlying results on overall results.

The inconvenients:

  • More sensitive to large swings in market capitalization or economic book value (which can be affected by changes in WACC) from period to period, especially from companies with a large weighting in the NC 2000 /Sector.

[1] The NC 2000 consists of the 2000 largest US companies by market capitalization in my company coverage. The components are updated on a quarterly basis (March 31, June 30, September 30 and December 31). I exclude companies reporting under IFRS and non-US ADR companies.

[2] I calculate these metrics based on S&P Global(SPGI), which sums the individual NC 2000 constituent values ​​for market capitalization and economic book value before using them to calculate the measures. This is what I call the “aggregate” methodology.

[3] My company’s research is based on the latest audited financial data, which is 3Q21 10-Q in most cases. Price data is as of 11/16/21.

[4] The full version of this report provides analysis for each sector like what I show for this sector.

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Two S&P 500 sectors trade below economic book value after Q3’21 results https://medielys.com/2021/12/16/two-sp-500-sectors-trade-below-economic-book-value-after-q321-results/ Thu, 16 Dec 2021 08:00:00 +0000 https://medielys.com/2021/12/16/two-sp-500-sectors-trade-below-economic-book-value-after-q321-results/ marsmeena29/iStock via Getty Images This report is a free, abridged version of S&P 500 & Sectors: Price-to-Economic Book Value Through 3Q21, one of the reports in our quarterly series on market and sector fundamental trends. The full version of this report analyzes[1][2] market capitalization, economic book value, and price-to-economic book value (PEBV) ratio for the […]]]>

marsmeena29/iStock via Getty Images

This report is a free, abridged version of S&P 500 & Sectors: Price-to-Economic Book Value Through 3Q21, one of the reports in our quarterly series on market and sector fundamental trends.

The full version of this report analyzes[1][2] market capitalization, economic book value, and price-to-economic book value (PEBV) ratio for the S&P 500 and each of its sectors (latest quarter analysis is here).

The S&P 500’s trailing PEBV ratio fell year-over-year

The S&P 500 rolling PEBV ratio remains unchanged year-over-year at 1.5 in 3Q21. The S&P 500’s trailing PEBV ratio hovered around this level for much of 2017-19, before falling in early 2020.

This rolling PEBV ratio compares the S&P 500’s expected future earnings (incorporated in its equity valuation) to TTM earnings in 3Q21. At 1.5, the S&P 500 valuation implies that S&P 500 earnings (NOPAT) will rise 50% from 3Q21 levels.

Key details on selected S&P 500 sectors

Two S&P 500 sectors, telecommunications services and consumer staples, are trading below their economic book value and two, healthcare and financials, are trading at their economic book value. The telecommunications services sector has the lowest PEBV ratio among the 11 S&P 500 sectors based on 11/16/21 prices and 3Q21 10-Qs financial data.

A PEBV ratio of 0.5 means the market expects 3Q21 telecom services sector earnings to decline 50% from current levels. On the other hand, investors expect the real estate and energy sectors (PEBV ratios of 3.9 and 3.1) to improve earnings more than any other sector in the S&P 500.

Below, we highlight the telecommunications services sector, which has the lowest PEBV ratio of the S&P 500 sectors.

Example of sector analysis[3]: Telecom services : Trailing PEBV ratio = 0.5

Figure 1 shows that the mobile PEBV ratio for the telecommunications services sector fell from 0.8 in 3Q20 to 0.5 in 3Q21. The market capitalization of the telecommunications services sector fell from $758 billion in 3Q20 to $677 billion in 3Q21, while its economic book value fell from $997 billion in 3Q20 to $1.5 trillion in 3Q21.

Figure 1: PEBV ratio of telecommunications services: December 2004 – 11/16/21

Sources: New Constructs, LLC and company filings. The November 16, 2021 measurement period uses price data as of that date and incorporates 3Q21 10-Q financial data, as this is the earliest date for which all calendar 3Q21 10-Qs for components of the S&P 500 were available.

Figure 2 compares market capitalization and economic book value trends for the telecommunications services sector since 2004. We sum the individual S&P 500/sector values ​​for market capitalization and economic book value. We call this approach the “Aggregate” methodology, and it matches the S&P Global (SPGI) methodology for these calculations.

Figure 2: Market capitalization of telecommunications services and economic book value: December 2004 – 16/11/21

Sources: New Constructs, LLC and company filings. The November 16, 2021 measurement period uses price data as of that date and incorporates 3Q21 10-Q financial data, as this is the earliest date for which all calendar 3Q21 10-Qs for components of the S&P 500 were available.

The Aggregate Methodology provides a simple view of the entire S&P 500/sector, regardless of company size or index weighting, and is how S&P Global (SPGI) calculates metrics for the S&P500.

For additional perspective, we compare the aggregate method for the rolling PEBV ratio with two other market-weighted methodologies: market-weighted measures and market-weighted drivers. These market-weighted methodologies add more value to ratios that do not include market values, for example, ROIC and its drivers, but we nevertheless include them here for comparison purposes. Each method has its advantages and disadvantages, which are detailed in the appendix.

Figure 3 compares these three methods of calculating the rolling PEBV ratio of the telecommunications services sector.

Figure 3: Comparison of PEBV ratio methodologies for telecommunications services: December 2004 – 11/16/21

Sources: New Constructs, LLC and company filings. The November 16, 2021 measurement period uses price data as of that date and incorporates 3Q21 10-Q financial data, as this is the earliest date for which all calendar 3Q21 10-Qs for components of the S&P 500 were available.

This article originally published on November 24, 2021.

Disclosure: David Trainer, Kyle Guske II, and Matt Shuler receive no compensation for writing about a specific stock, style, or theme.

Appendix: Trailing PEBV Ratio Analysis with Different Weighting Methodologies

We derive the above measures by summing the individual S&P 500/sector constituent values ​​for market capitalization and economic book value to calculate the PEBV ratio. We call this approach the “Aggregate” methodology.

The Aggregate Methodology provides a simple view of the entire S&P 500/sector, regardless of company size or index weighting, and is how S&P Global (SPGI) calculates metrics for the S&P500.

For additional perspective, we compare the aggregate method for the mobile PEBV ratio with two other market-weighted methodologies. These market-weighted methodologies add more value to ratios that do not include market values, for example, ROIC and its drivers, but we include them here nonetheless for comparison:

  1. Market-weighted measures – calculated by weighting according to market capitalization the PEBV ratio of individual companies relative to their sector or to the entire S&P 500 at each period. Details:
    1. The weight of the company is equal to the market capitalization of the company divided by the market capitalization of the S&P 500 or its sector
    2. We multiply the PEBV ratio of each company by its weight
    3. The S&P 500/sector trailing PEBV is equal to the sum of the weighted trailing PEBV ratios for all S&P 500 companies/sector
  2. Market-weighted drivers – calculated by weighting the market capitalization and the economic book value of individual companies in each sector at each period. Details:
    1. The weight of the company is equal to the market capitalization of the company divided by the market capitalization of the S&P 500 or its sector
    2. We multiply the market cap and economic book value of each company by its weight
    3. We add the weighted market capitalization and weighted economic book value of each S&P 500 company/sector to determine the S&P 500 or sector weighted FCF and weighted enterprise value.
    4. The rolling PEBV ratio of the S&P 500/sector is equal to the weighted market capitalization of the S&P 500/sector divided by the weighted economic book value of the S&P 500/sector

Each methodology has its pros and cons as listed below:

Aggregate method

Benefits:

  • A direct view of the entire S&P 500/sector, regardless of company size or weighting.
  • Corresponds to how S&P Global calculates metrics for the S&P 500.

The inconvenients:

  • Vulnerable to the impact of companies entering/leaving the corporate group, which could unduly affect overall values. Also sensitive to outliers over a period of time.

Market-weighted measures method

Benefits:

  • Considers a company’s market capitalization relative to the S&P 500/sector and weights its metrics accordingly.

The inconvenients:

  • Vulnerable to outlying results from a single company have a disproportionate impact on the overall PEBV ratio, as we will show below.

Market-weighted factor method

Benefits:

  • Considers a company’s market capitalization relative to the S&P 500/sector and weights its size and economic book value accordingly.
  • Mitigates the disproportionate impact of a company’s outlying results on overall results.

The inconvenients:

  • More sensitive to large swings in market capitalization or economic book value (which can be affected by changes in WACC) from period to period, especially from companies with a large weighting in the S&P 500 /Sector.

[1] We calculate these measurements based on S&P Global‘s (SPGI), which sums individual S&P 500 component values ​​for market capitalization and economic book value before using them to calculate metrics. This is what we call the “Aggregate” methodology.

[2] Our research is based on the latest audited financial data, which is 3Q21 10-Q in most cases. Price data is as of 11/16/21.

[3] The full version of this report provides analysis for each sector, like what we show for this sector.

]]>
Two S&P 500 sectors trade below economic book value after 3Q21 earnings https://medielys.com/2021/12/10/two-sp-500-sectors-trade-below-economic-book-value-after-3q21-earnings/ Fri, 10 Dec 2021 08:00:00 +0000 https://medielys.com/2021/12/10/two-sp-500-sectors-trade-below-economic-book-value-after-3q21-earnings/ NEW YORK – OCTOBER 07: A trader works on the floor of the New York Stock Exchange on October 7, 2008 … [+] At New York. Despite a public debt buyback plan, the Dow continued to fall today, closing over 500 points. (Photo by Mario Tama/Getty Images) Getty Images This report is a free, abridged […]]]>

This report is a free, abridged version of S&P 500 & Sectors: Price-to-Economic Book Value Through 3Q21, one of the reports in my quarterly series on fundamental market and sector trends.

The full version of this report analyzes[1][2] market capitalization, economic book value, and price-to-economic book value (PEBV) ratio for the S&P 500 and each of its sectors (latest quarter analysis is here).

The S&P 500’s trailing PEBV ratio fell year-over-year

The S&P 500 rolling PEBV ratio remains unchanged year-over-year at 1.5 in 3Q21. The S&P 500’s trailing PEBV ratio hovered around this level for much of 2017-19, before falling in early 2020.

This rolling PEBV ratio compares the S&P 500’s expected future earnings (incorporated in its equity valuation) to TTM earnings in 3Q21. At 1.5, the S&P 500 valuation implies that S&P 500 earnings (NOPAT) will rise 50% from 3Q21 levels.

Key details on selected S&P 500 sectors

Two S&P 500 sectors, telecommunications services and consumer staples, are trading below their economic book value and two, healthcare and financials, are trading at their economic book value. The telecommunications services sector has the lowest PEBV ratio among the 11 S&P 500 sectors based on 11/16/21 prices and 3Q21 10-Qs financial data.

A PEBV ratio of 0.5 means the market expects 3Q21 telecom services sector earnings to decline 50% from current levels. On the other hand, investors expect the real estate and energy sectors (PEBV ratios of 3.9 and 3.1) to improve earnings more than any other sector in the S&P 500.

Below, I highlight the telecommunications services sector, which has the lowest PEBV ratio of the S&P 500 sectors.

Example of sector analysis[3]: Telecom services : Trailing PEBV ratio = 0.5

Figure 1 shows that the mobile PEBV ratio for the telecommunications services sector fell from 0.8 in 3Q20 to 0.5 in 3Q21. The market capitalization of the telecommunications services sector fell from $758 billion in 3Q20 to $677 billion in 3Q21, while its economic book value fell from $997 billion in 3Q20 to $1.5 trillion in 3Q21.

Figure 1: PEBV ratio of telecommunications services: December 2004 – 11/16/21

The November 16, 2021 measurement period uses price data as of that date and incorporates 3Q21 10-Q financial data, as this is the earliest date for which all calendar 3Q21 10-Qs for components of the S&P 500 were available.

Figure 2 compares market capitalization and economic book value trends for the telecommunications services sector since 2004. I summarize the individual S&P 500/sector values ​​for market capitalization and economic book value. I call this approach the “global” methodology, and it matches the S&P Global (SPGI) methodology for these calculations.

Figure 2: Market capitalization of telecommunications services and economic book value: December 2004 – 11/16/21

The November 16, 2021 measurement period uses price data as of that date and incorporates 3Q21 10-Q financial data, as this is the earliest date for which all calendar 3Q21 10-Qs for components of the S&P 500 were available.

The Aggregate Methodology provides a simple view of the entire S&P 500/sector, regardless of company size or index weighting, and is how S&P Global (SPGI) calculates metrics for the S&P500.

For additional perspective, I compare the aggregate method for the trailing PEBV ratio with two other market-weighted methodologies: market-weighted measures and market-weighted drivers. These market-weighted methodologies add more value to ratios that don’t include market values, eg ROIC and its drivers, but I’m including them here for comparison purposes nonetheless. Each method has its advantages and disadvantages, which are detailed in the appendix.

Figure 3 compares these three methods of calculating the rolling PEBV ratio of the telecommunications services sector.

Figure 3: Comparison of PEBV ratio methodologies for telecommunications services: December 2004 – 11/16/21

The November 16, 2021 measurement period uses price data as of that date and incorporates 3Q21 10-Q financial data, as this is the earliest date for which all calendar 3Q21 10-Qs for components of the S&P 500 were available.

Disclosure: David Trainer, Kyle Guske II, and Matt Shuler receive no compensation for writing about a specific stock, style, or theme.

Appendix: Trailing PEBV Ratio Analysis with Different Weighting Methodologies

I derive the above metrics by adding the individual S&P 500/sector values ​​for market capitalization and economic book value to calculate the trailing PEBV ratio. I call this approach the “Aggregate” methodology.

The Aggregate Methodology provides a simple view of the entire S&P 500/sector, regardless of company size or index weighting, and is how S&P Global (SPGI) calculates metrics for the S&P500.

For additional perspective, I compare the aggregate method for the trailing PEBV ratio with two other market-weighted methodologies. These market-weighted methodologies add more value for ratios that don’t include market values, e.g. ROIC and its drivers, but I’m including them here nonetheless, for comparison:

Market-weighted measures – calculated by weighting according to market capitalization the PEBV ratio of individual companies relative to their sector or to the entire S&P 500 at each period. Details:

  1. The weight of the company is equal to the market capitalization of the company divided by the market capitalization of the S&P 500 or its sector
  2. I multiply the PEBV ratio of each company by its weight
  3. The S&P 500/sector trailing PEBV is equal to the sum of the weighted trailing PEBV ratios for all S&P 500 companies/sector

Market-weighted drivers – calculated by weighting the market capitalization and the economic book value of individual companies in each sector at each period. Details:

  1. The weight of the company is equal to the market capitalization of the company divided by the market capitalization of the S&P 500 or its sector
  2. I multiply the market capitalization and the economic book value of each company by its weight
  3. I sum the weighted market cap and weighted economic book value of each S&P 500 company/sector to determine the S&P 500 or sector weighted FCF and weighted enterprise value
  4. The rolling PEBV ratio of the S&P 500/sector is equal to the weighted market capitalization of the S&P 500/sector divided by the weighted economic book value of the S&P 500/sector

Each methodology has its pros and cons as listed below:

Aggregate method

Advantages:

  • A direct view of the entire S&P 500/sector, regardless of company size or weighting.
  • Corresponds to how S&P Global calculates metrics for the S&P 500.

The inconvenients:

  • Vulnerable to the impact of companies entering/leaving the corporate group, which could unduly affect overall values. Also sensitive to outliers over a period of time.

Market-weighted measures method

Advantages:

  • Considers a company’s market capitalization relative to the S&P 500/sector and weights its metrics accordingly.

The inconvenients:

  • Vulnerable to outlying results from a single company have a disproportionate impact on the overall PEBV ratio, as I will show below.

Market-weighted factor method

Advantages:

  • Considers a company’s market capitalization relative to the S&P 500/sector and weights its size and economic book value accordingly.
  • Mitigates the disproportionate impact of a company’s outlying results on overall results.

The inconvenients:

  • More sensitive to large swings in market capitalization or economic book value (which can be affected by changes in WACC) from period to period, especially from companies with a large weighting in the S&P 500 /Sector.

[1] I calculate these metrics based on S&P Global(SPGI), which sums the individual values ​​of the S&P 500 components for market capitalization and economic book value before using them to calculate the metrics. This is what I call the “aggregate” methodology.

[2] My research is based on the latest audited financial data, which is 3Q21 10-Q in most cases. Price data is as of 11/16/21.

[3] The full version of this report provides analysis for each sector like what I show for this sector.

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What is book value? Definition, how to calculate and FAQ https://medielys.com/2021/11/30/what-is-book-value-definition-how-to-calculate-and-faq/ Tue, 30 Nov 2021 14:29:12 +0000 https://medielys.com/2021/11/30/what-is-book-value-definition-how-to-calculate-and-faq/ [ad_1] Investors looking for a basic valuation of a business can look to its assets and liabilities. Another term for book value is shareholders’ equity. Dominic Diongson; Cloth Contents What is book value? How do you calculate the book value? Why is book value important? Book value vs market value vs intrinsic value, according to […]]]>


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What is book value?

Book value is an accounting measure of a company’s equity. It is a measure used to calculate the valuation of a business based on its assets and liabilities.

If owners or managers were looking to sell their business quickly and had to sort out the valuation, one method would be book value. By going through their balance sheet, they would subtract liabilities from assets, providing an amount of net assets. Another term for book value is shareholders’ equity, which is an item that can be found on the balance sheets of quarterly and annual filings of publicly traded companies with the Securities and Exchange Commission. It is usually found in the assets, liabilities and equity section of the balance sheet.

Net income can play a major role in the book value of a business, and owners or managers generally want their business valuation to increase: the higher the profits, the higher the book value; conversely, a drop in profits can lead to a drop in book value. It’s easier to increase or decrease profits on a quarterly basis because other assets and liabilities tend to fluctuate less than net income.

How do you calculate the book value?

Book value = Assets – Liabilities

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Book value can be calculated in a simplified way by subtracting a company’s liabilities from its assets. In many cases, however, other items are included in this calculation, and it is not as simple as subtracting the “Total liabilities” item from the “Total assets” item.

In the financial statements of The Coca-Cola Company, for example, equity would be listed as “total equity,” which subtracted all types of liabilities, including long-term debt, from “total equity”. active ”. Amazon lists its equity simply as “total equity”.

Why is book value important?

For startups, book value is a basic metric to measure the valuation of their business. They do not have stocks that are freely traded and, therefore, are priced in the public market. There are other valuation methods for start-ups, of course, but book value provides tangible assets such as equipment, property, and inventory.

A publicly traded company, on the other hand, will have a published market price, giving investors the ability to compare the market value of the company to its book value. Book value tends to be less than market value because shareholders generally place a premium on the price. However, if the book value is greater than the market value then the company would be considered undervalued but, despite this, it is rare to see the book value equal to or less than the market value. However, unusual events such as stock market crashes can cause the market value to drop sharply. At the start of the 2020 pandemic, panic selling caused the stock prices of many companies to plummet, and in late March and early April the market value of some fell below their book value.

It is difficult to predict the assets or liabilities of a business or to gather this information in real time. Investors therefore use the most recent data and combine it with the latest stock price to calculate the price-to-book ratio.

TheStreet Dictionary Terms

Below is a table of the book values ​​of companies at the end of the third quarter of 2021 compared to their market capitalization at the end of November, in billions of dollars.

Form 10-Q Deposits

Society Book value Market valuation

You’re here

27

1140

Amazon

93

1,810

Apple

63

2,630

Coca Cola

24

235

Berkshire Hathaway

481

632

Book value vs market value vs intrinsic value, according to Warren Buffett

In recent decades, famed investor Warren Buffett has placed less emphasis on book value, claiming in Berkshire Hathaway’s annual reports that it is a weak indicator for gauging a company’s value. Instead, he prefers to look at market value and go deeper, intrinsic value, which in layman’s terms, he says, is the present value of money that can be taken out of a business during its life. remaining life.

He used a college degree as an example where the book value was roughly the cost of education, while the intrinsic value was roughly the difference between the graduate’s income over his lifetime and what the graduate would have. been his income during his life without a degree. Buffett focuses on the future (intrinsic) value of a business for its profit potential rather than its historical (book) value. In fact, he goes on to say that book value does not make sense as an indicator of intrinsic value.

Frequently Asked Questions (FAQ)

Here are answers to some of the most frequently asked questions investors have about book value.

Are book value and market value the same?

Market value is calculated by multiplying the number of outstanding shares of a company by the price of its shares, while book value is the difference between its assets and liabilities.

What is book value per share?

Book value per share is calculated by taking equity and dividing it by the number of shares outstanding, which gives book value per share.

What is the price-to-book ratio?

This ratio measures how the market valuation of a company compares to its book value. A high ratio may indicate overvaluation, while a low ratio suggests it is at fair value or undervalued.

How is book value used in calculating return on equity?

Return on equity is calculated by dividing net income by book value.

Can the book value be negative?

Book value can be negative if a company’s liabilities exceed its assets. In many cases, a negative book value could mean that a business is bankrupt.

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