Everyone loves getting a good deal, whether it’s a discount on groceries, a two-for-one sale, or a great price on a car. When it comes to value stocks, however, the real benefit comes when the market recognizes the stock’s true value and its price increases.
Stocks with low price-to-earnings (P/E) ratios are especially appealing for long-term investors. As these stocks’ valuations increase over time, they often provide attractive returns. Below, I have highlighted three such undervalued stocks that are trading at P/E ratios under 15, namely, The Kroger Co. (KR), Textron Inc. (TXT), and United Therapeutics Corporation (UTHR).
But first, let’s understand what a P/E ratio is.
The P/E ratio compares a company’s stock price to its earnings per share (EPS), helping investors gauge how much they pay for every dollar of earnings. It’s calculated by dividing the stock price by the company’s earnings per share and can be based on trailing (past) or forward (future) earnings projections.
Factors such as interest rates, expected growth, and market sentiment influence a company’s P/E ratio. A low P/E ratio could signal a short-term challenge, but it doesn’t necessarily mean the company isn’t growing. Many investors have profited by investing in undervalued stocks that the market temporarily overlooked. Once these companies outperform expectations, their earnings and stock prices rise.
However, relying solely on P/E ratios without considering a company’s growth and fundamentals could be risky. So, let’s explore the fundamental aspects of KR, TXT, and UTHR to understand their potential in detail:
The Kroger Co. (KR)
KR is a food retailer that owns and operates combination food and drug stores, supermarkets, multi-department stores, and price-impact warehouses. It offers grocery, health, and beauty care items, general merchandise (including apparel, home goods, and toys), pet centers, fresh seafood, and organic produce.
On June 27, KR increased its dividend by 10.3% from $1.16 to $1.28 per share annually, marking the 18th consecutive year of dividend increases. The quarterly dividend of 29 cents per share was paid to its shareholders on September 1, 2023.
KR’s annual dividend yields 2.46% at the current price level, while its four-year average yield is 2.01%. Its dividend payouts have increased at a 16.6% CAGR over the past three years and a 15.5% CAGR over the past five years.
In terms of forward non-GAAP P/E, KR is trading at 11.71x, 35.7% lower than the industry average of 18.21x. Likewise, the stock’s forward EV/Sales and Price/Sales multiples of 0.36 and 0.25 are 79.2% and 80.8% below their respective industry averages of 1.74 and 1.31.
KR’s sales increased marginally year-over-year to $45.27 billion in the first quarter that ended May 25, 2024, while its operating profit amounted to $1.29 billion. The company’s adjusted net earnings for the period came in at $1.05 billion and $1.43 per share. As of May 25, 2024, KR’s cash amounted to $345 million, representing an increase of 43.2% year-over-year.
Looking ahead to 2024, Kroger remains cautiously optimistic, with identical sales without fuel anticipated to grow between 0.25% and 1.75%. Adjusted FIFO operating profit is projected to be between $4.6 billion and $4.8 billion, while adjusted net earnings per diluted share are expected to range from $4.30 to $4.50.
Street expects KR’s revenue for the quarter ending October 2024 to increase marginally year-over-year to $34.32 billion. Its EPS for the current quarter is expected to grow 3.6% year-over-year to $0.98. Also, KR surpassed the consensus EPS estimate in each of the trailing four quarters.
Over the past nine months, the stock has gained 14% to close the last trading session at $51.97.
KR’s POWR Ratings reflect this promising outlook. The stock’s overall A rating translates to a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has a B grade for Value, Sentiment, and Quality. Within the A-rated Grocery/Big Box Retailers industry, it is ranked #8 out of 37 stocks.
To see the additional POWR Ratings of KR for Growth, Momentum, and Stability, click here.
Textron Inc. (TXT)
TXT is a multi-industry company that leverages its global network of aircraft, defense, industrial, and finance businesses to provide customers with various solutions and services. It operates through six segments: Textron Aviation; Bell; Textron Systems; Industrial; Textron eAviation; and Finance.
On August 21, Bell Textron Inc. (a TXT company) delivered a Bell 429 and a signed purchase agreement for two Bell 407GXi aircraft with the Chicago Police Department. Bell’s advanced technology and multi-mission capabilities make these models ideal for public safety agencies. This continued partnership, lasting over 20 years, underscores Bell’s leadership in the sector and highlights TXT’s sustained influence and growth in the public safety aviation market.
In terms of forward non-GAAP P/E, TXT is trading at 13.77x, 27.1% lower than the industry average of 18.89x. The stock’s forward EV/Sales of 1.30x is 26.5% lower than the industry average of 1.77x. Also, its forward Price/Sales multiple of 1.12 compares with the 1.40 industry average.
For the six months ended June 29, 2024, TXT’s total revenues increased 3.3% year-over-year to $6.66 billion, while its segment profit improved by 3.6% from the year-ago value to $633 million. The company’s adjusted income from continuing operations amounted to $529 million or $2.74 per share, representing an increase of 2.9% and 9.2% from last year, respectively.
According to the outlook for 2024, TXT forecasts adjusted income from continuing operations to range from $1.18 billion to $1.22 billion. The company also expects non-GAAP EPS to be between $6.20 and $6.40 and the manufacturing cash flow before pension contributions (non-GAAP) to range between $900 million and $1 billion.
Analysts expect TXT’s revenues for the third quarter (ending September 2024) to increase 8.4% year-over-year to $3.62 billion, while its EPS for the same period is expected to grow 6.4% from the prior year to $1.58. Moreover, the company has surpassed the consensus EPS estimates in three of the trailing four quarters, which is promising.
The stock has gained 14.4% over the past nine months to close the last trading session at $86.88.
TXT’s bright prospects are reflected in its POWR Ratings. The stock has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.
It also has an A grade for Value and a B for Momentum and Quality. It is ranked #4 out of 71 stocks in the Air/Defense Services industry. Click here to see TXT’s ratings for Growth, Stability, and Sentiment.
United Therapeutics Corporation (UTHR)
UTHR, a biotechnology company, develops and commercializes products to address the unmet medical needs of patients with chronic and life-threatening diseases in the United States and internationally.
In terms of forward non-GAAP P/E, UTHR is trading at 13.44x, which is 36.7% lower than the industry average of 21.23x. The stock’s forward EV/EBITDA of 8.07x is 41.2% lower than the industry average of 13.73x. Also, its forward EV/EBIT multiple of 8.34 is 50.8% below the industry average of 16.97x.
UTHR’s revenues increased 19.8% year-over-year to $714.90 million in the fiscal second quarter ended June 30, 2024. Its operating income grew 2.1% year-over-year to $319.90 million over the period, while its net income and net income per share increased 7.3% and 11.6% from its year-ago values to $278.10 million and $5.85, respectively.
The consensus EPS estimate of $6.50 for the fiscal third quarter (ending September 2024) represents a 20.8% improvement year-over-year. The consensus revenue estimate of $726.96 million for the ongoing quarter represents a 19.3% increase from last year. The company has an excellent surprise history; it surpassed the consensus revenue estimates in each of the trailing four quarters.
Shares of UTHR have gained 43.5% over the past six months and 58.6% year-to-date to close the last trading session at $348.71.
It is no surprise that UTHR has an overall rating of B, which equates to a Buy in our POWR Ratings system. It has an A grade for Value and a B for Quality. Also, it is ranked #23 among 337 stocks in the Biotech industry.
In addition to the POWR Rating grades I’ve just highlighted, you can see UTHR’s Growth, Momentum, Stability, and Sentiment ratings here.
What To Do Next?
Discover 10 widely held stocks that our proprietary model shows have tremendous downside potential. Please make sure none of these “death trap” stocks are lurking in your portfolio:
KR shares were trading at $52.22 per share on Tuesday afternoon, up $0.25 (+0.48%). Year-to-date, KR has gained 16.29%, versus a 15.34% rise in the benchmark S&P 500 index during the same period.
About the Author: Shweta Kumari
Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions.
3 Value Stocks to Buy with P/E Ratios Below 15 StockNews.com
