Dividend Investors: Don’t Be Too Quick To Buy Applied Industrial Technologies, Inc. (NYSE:AIT) For Its Upcoming Dividend With growing sustainable cash flows, this high-yielding payout should keep expanding. The U.S. presidency is set to change in January—but the two powerful forces that have driven financial markets this year will likely remain the same: the Federal Reserve and the pandemic. Many money managers have coalesced around the idea that what happens now isn’t dependent quite so much on what Democrat Joe Biden will do […] More
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 Lithia Motors, Inc. LAD 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:
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, Lithia Motors has a trailing twelve months PE ratio of 17.03, 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 24.94. If we focus on the long-term PE trend, Lithia Motors’ current PE level puts it above its midpoint over the past five years.
Further, the stock’s PE also compares favorably with the sector’s trailing twelve months PE ratio, which stands at 39.71. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.
We should also point out that Lithia Motors has a forward PE ratio (price relative to this year’s earnings) of just 14.99, so it is fair to say that a slightly more value-oriented path may be ahead for Lithia Motors stock in the near term too.
Another key metric to note is the Price/Sales ratio. This approach compares a given stock’s price to its total sales, where a lower reading is generally considered better. Some people like this metric more than other value-focused ones because it looks at sales, something that is far harder to manipulate with accounting tricks than earnings.
Right now, Lithia Motors has a P/S ratio of about 0.49. This is significantly lower than the S&P 500 average, which comes in at 5.03 right now. Also, as we can see in the chart below, this is below the highs for this stock in particular over the past few years.
LAD is actually in the higher zone of its trading range in the time period per the P/S metric, which suggests that the company’s stock price has already appreciated to some degree, relative to its sales.
In aggregate, Lithia Motors 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 Lithia Motors a solid choice for value investors, and some of its other key metrics make this pretty clear too.
For example, the PEG ratio for Lithia Motors is 0.68, a level that is lower than the industry average of 1.12. The PEG ratio is a modified PE ratio that takes into account the stock’s earnings growth rate. Clearly, LAD is a solid choice on the value front from multiple angles.
Meanwhile, the company’s recent earnings estimates have been mostly trending higher. The current quarter has seen two estimates go higher in the past sixty days compared to one lower, while the full year estimate has seen four upward and zero downward revisions in the same time period.
As a result, the current quarter consensus estimate has risen by 18% in the past two months, while the full year estimate has increased 25%. You can see the consensus estimate trend and recent price action for the stock in the chart below:
Lithia Motors, Inc. Price and Consensus
Lithia Motors, Inc. price-consensus-chart | Lithia Motors, Inc. Quote
Even though Lithia Motors has a better estimates trend, the stock has just a Zacks Rank #3 (Hold). That is why we are looking for in-line performance from the company in the near term.
Lithia Motors is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. With a solid industry rank (among the Top 3%), the company looks like a strong value contender. In fact, over the past two years, the industry has clearly outperformed the broader market, as you can see below:
So, despite a Zacks Rank #3, we believe that bullish analyst sentiment and favorable industry factors make this value stock a compelling pick.
Each was hand-picked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2020. Each comes from a different sector and has unique qualities and catalysts that could fuel exceptional growth.
Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.
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This 5%-Yielding Dividend Stock Is on a Very Sustainable Path
Atlantica Sustainable Infrastructure’s (NASDAQ:AY) focus on investing in sustainable infrastructure assets paid dividends during the third quarter. Thanks to recent acquisitions and financing initiatives, its cash available for distribution (CAFD) surged 13.6% to $52 million. That helped put the company’s 5%-yielding dividend on an even more sustainable foundation.
Atlantica benefited from its diversified portfolio of sustainable infrastructure assets in the third quarter. One of the highlights was its solar energy business. Revenue from the company’s operations in the U.S. improved thanks to better performance from its Mojave asset, which offset weaker solar resources in Spain and the impact of smoke caused by wildfires in California on some of its solar assets in that state.
Image source: Getty Images.
Meanwhile, the company’s efficient natural gas assets generated 30% more electricity thanks to a surge in availability. Finally, the company’s water operations also helped bolster its results, due mainly to a recent acquisition.
The company also made excellent progress on the strategic front during the quarter. Atlantica closed the $290 million acquisition of an additional equity interest in the Solana solar project in the U.S. during the quarter. That sizable investment should pay dividends in the coming quarters by generating meaningful incremental cash flow.
Atlantica also signed a deal to buy a district heating asset in Canada during the quarter. The company will pay $20 million for a business that generates stable revenue backed by long-term contracts as it provides heat to government, industrial, and commercial customers in Calgary. It’s the company’s first district heating investment. The company sees lots of growth potential in district energy, including adding new customers to this system and acquiring additional assets elsewhere.
Atlantica’s strong showing in the third quarter has it on track to achieve its full-year CAFD forecast of between $200 million and $225 million. That implies about 12% year-over-year growth at the midpoint from last year’s level.
That upward trend in cash flow should continue in 2021. The company has already secured $322 million of growth investments this year, which gives it lots of momentum in 2021, given the late-year timing of the Solana purchase and the pending purchase of the Canadian district energy asset. Meanwhile, the company has identified several other potential investment opportunities across all sectors and regions where it currently operates. It continues to believe it can invest between $200 million to $300 million per year.
Atlantica also continues to take steps to obtain the financing needed to support this growth. It has already generated $216 million in cash this year from project debt refinancing that it can use to fund its growth plan. Overall, it has more than $600 million of corporate liquidity, including $187 million of cash at the end of the third quarter.
With a sizable opportunity set and lots of liquidity, Atlantica should be able to continue growing its CAFD at a healthy pace. That should give the company plenty of power to keep increasing its dividend, which it has done 11 times since 2016.
Atlantica Sustainable Infrastructure generates stable cash flow backed by long-term contracts on assets focused on the clean energy and water sectors. It pays a sustainable dividend that it has steadily increased by expanding its portfolio. With one sizable deal recently closed, another smaller one secured, and many more in the pipeline, the company appears poised to deliver sustainable dividend growth for the foreseeable future.
Author: Matthew DiLallo
What a Joe Biden Presidency Will Mean for Markets
The U.S. presidency is set to change in January—but the two powerful forces that have driven financial markets this year will likely remain the same: the Federal Reserve and the pandemic.
Many money managers have coalesced around the idea that what happens now isn’t dependent quite so much on what Democrat Joe Biden will do once he takes control of the White House—especially since it appears Congress might be divided.
Author: Written by FinancialNews