5 Large-Cap Stocks With The Lowest Enterprise Multiples

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Includes: AAL, DAL, HPQ, UAL, VLO
by: Mitchell Mauer

Summary

This article highlights five of the top stocks qualifying for the Enterprise Multiple screen.

The Enterprise Multiple finds undervalued, out-of-favor stocks that are ripe for activist takeovers.

The Enterprise Multiple investment strategy is discussed at length in What Works On Wall Street, Quantitative Value, and Deep Value.

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This article highlights five of the top stocks qualifying for the Enterprise Multiple screen.

The Enterprise Multiple investment strategy is discussed at length in What Works On Wall Street, Quantitative Value, and Deep Value.

Enterprise Multiple Description

The Enterprise Multiple finds undervalued, out-of-favor stocks that are ripe for activist takeovers. The ratio measures a company's valuation based on its enterprise value to EBIT, rather than the more common ratio of market capitalization to net earnings.

Where market capitalization is the value of a business's equity, enterprise value includes equity plus debt less cash. It is the cost to acquire the entire company. EBIT is earnings before interest and taxes.

Using EBIT in place of net earnings provides a clearer picture of a company's operating profits. By not including interest or taxes, the metric compares the operational structure of the business, rather than letting a company's financing and tax statuses affect its profitability.

Here is a breakdown of the five stocks with the lowest enterprise multiple as found on The Stock Market Blueprint:

  • United Continental Holdings, Inc. (NYSE:UAL) - United Continental Holdings, Inc. is a holding company and its principal, wholly-owned subsidiary is United Airlines, Inc. On March 31, 2013, the Company merged United Air Lines, Inc. with Continental Airlines, Inc. to form one legal entity with Continental continuing as the surviving corporation. Continental's name was subsequently changed to United Airlines, Inc. United's operating revenues and operating expenses comprise nearly 100% of UAL's revenues and operating expenses.
    • Enterprise Value: $23.31 Billion
    • EBIT (NYSE:TTM): $5.07 Billion
    • Enterprise Multiple: 4.59
    • Closing Price on Tuesday (6/14/16): $42.09
  • Delta Air Lines, Inc. (NYSE:DAL) - Delta Airlines Inc. provides scheduled air transportation for passengers and cargo throughout the United States and around the world. Its global route network gives the company a presence in every major domestic and international market. Delta Air Lines' network is supported by a fleet of aircraft that is varied in size and capabilities.
    • Enterprise Value: $37.26 Billion
    • EBIT : $7.94 Billion
    • Enterprise Multiple: 4.69
    • Closing Price on Tuesday (6/14/16): $39.11
  • HP Inc. (NYSE:HPQ) - HP Inc. is a leading global provider of products, technologies, software, solutions and services to individual consumers, small- and medium-sized businesses and large enterprises, including customers in the government, health and education sectors. On November 1, 2015, Hewlett-Packard Company completed the separation of Hewlett Packard Enterprise Company ("Hewlett Packard Enterprise") with Hewlett-Packard Company's former enterprise technology infrastructure, software, services and financing businesses. In connection with the Separation, Hewlett-Packard Company changed its name to HP Inc.
    • Enterprise Value: $24.69 Billion
    • EBIT : $5.13 Billion
    • Enterprise Multiple: 4.82
    • Closing Price on Tuesday (6/14/16): $13.05
  • Valero Energy Corp. (NYSE:VLO) - Valero Energy Corporation operates as an independent petroleum refining and marketing company in the United States, Canada, the Caribbean, the United Kingdom, and Ireland. It operates through two segments, Refining and Ethanol. The company also operates a 50-megawatt wind farm; convenience stores; filling stations, as well as truckstop, cardlock, and home heating oil facilities; and credit card business. Valero Energy Corporation was founded in 1955 and is headquartered in San Antonio, Texas.
    • Enterprise Value: $28.43 Billion
    • EBIT : $5.69 Billion
    • Enterprise Multiple: 4.99
    • Closing Price on Tuesday (6/14/16): $50.79
  • American Airlines Group, Inc. (NASDAQ:AAL) - American Airlines Group Inc., through its subsidiaries, operates in the airline industry. It serves 350 destinations in approximately 50 countries. The company was formerly known as AMR Corporation and changed its name to American Airlines Group Inc. in December 2013. American Airlines Group Inc. was founded in 1934 and is headquartered in Fort Worth, Texas.
    • Enterprise Value: $34.3 Billion
    • EBIT : $6.32 Billion
    • Enterprise Multiple: 5.42
    • Closing Price on Tuesday (6/14/16): $30.36

Implementation

A good way to implement this strategy is by regularly investing equal amounts in the qualifying stocks with the lowest enterprise multiple.

Average investors will find numerous reasons not to buy the above stocks. Disciplined investors, on the other hand, will find success allowing a simple investment strategy to select stocks for them.

Access these stocks and more by signing up for free at The Stock Market Blueprint.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.