Investing in undervalued companies can yield higher returns in the long run. Moreover, stocks with strong fundamentals, including consistent earnings, healthy cash flow, and solid balance sheets, are generally more resilient during economic downturns, reducing the risk of significant losses.
Amid this backdrop, it could be wise to invest in fundamentally strong stocks Expedia Group, Inc. (EXPE), Incyte Corporation (INCY), and Albertsons Companies, Inc. (ACI), which are trading at a discount to their peers.
Value investing is a strategy where investors seek out stocks that seem undervalued by the market, trading below their intrinsic or book value. Value investors rely on financial analysis, avoid following the herd, and focus on long-term investments in quality companies.
Despite being undervalued, such companies often exhibit solid earnings growth, healthy operating cash flow, and a robust balance sheet with manageable debt levels, a high level of assets, and ample liquidity. Value stocks with sound fundamentals also can weather economic downturns.
Inflation cooled in May for a consecutive month. According to the Bureau of Labor Statistics’ latest report, the Consumer Price Index (CPI) rose 3.3% year-over-year, slowing from April’s 3.4% increase. On a monthly basis, prices were unchanged, following a 0.3% gain in April.
While inflation has been easing, it is still well above the Fed’s target of 2%. The central bank announced yesterday that it will maintain current interest rates and expects only one rate cut this year. At the post-meeting press conference, Fed Chair Jerome Powell emphasized that the central bank will not reduce rates until additional data confirms that inflation is cooling.
It could be the right time to favor value stocks with solid fundamentals in a high interest-rate environment. Investors' interest in value stocks is evident from the iShares Morningstar Value ETF’s (ILCV) 16.4% gains over the past year.
Given these factors, let’s delve deeper into the fundamentals of value stocks: EXPE, INCY, and ACI.
Expedia Group, Inc. (EXPE)
EXPE is a leading global online travel company. It operates in three segments: 2C; B2B; and trivago. The company’s three flagship consumer brands include Brand Expedia for various travel products and services, Hotels.com for lodging accommodations, and Vrbo, an online marketplace for alternative accommodations.
In terms of forward non-GAAP P/E, EXPE is trading at 10.39x, 34.6% lower than the industry average of 15.88x. Also, the stock’s forward EV/EBITDA multiple of 6.17 is 36.9% lower than the industry average of 9.77. Likewise, its forward Price/Cash Flow of 5.62x is 41.4% lower than the industry average of 9.59x.
EXPE’s trailing-12-month gross profit margin of 88.39% is 141.4% higher than the industry average of 36.62%. Similarly, its trailing-12-month EBIT margin and levered FCF margin of 11.80% and 13.42% are 53.9% and 147.7% higher than the industry averages of 7.66% and 5.42%, respectively.
Expedia Group continued to facilitate travel for everyone, everywhere, by expanding its global presence through new strategic partnerships. Ikyu, a Japanese luxury booking service, implemented EXPE’s Rapid API solution to add over 20,000 properties globally to its international site, offering guests lodging options and point-earning opportunities for future bookings.
Also, it was announced that Tourism and Events Queensland, Tourism Tropical North Queensland, Tourism Northern Territory, and Brisbane Economic Development Agency entered partnerships with Expedia Group Media Solutions to enhance travelers’ experiences and improve sustainable tourism in Australia.
For the first quarter that ended December 31, 2023, EXPE’s total gross bookings were $30.16 billion, up 2.6% year-over-year. Its revenue increased 8.4% year-over-year to $2.89 billion. Its adjusted EBITDA rose 37.8% from the prior year’s quarter to $155 million.
Furthermore, the company’s adjusted net income and adjusted earnings per share were $29 million and $0.21, compared to an adjusted net loss and adjusted loss per share of $30 million and $0.20, respectively.
Analysts expect EXPE’s revenue and EPS for the second quarter (ending June 2024) to increase 5.2% and 9.2% year-over-year to $3.53 billion and $3.16, respectively. Moreover, the company surpassed the consensus revenue estimates in each of the trailing four quarters.
Over the past month, the stock has gained 9.8% and 12.4% over the past year to close the last trading session at $124.56.
EXPE’s sound fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
EXPE has an A grade for Value and Quality. It is ranked #10 among 51 stocks within the B-rated Internet industry.
To see the additional ratings of EXPE for Growth, Momentum, Stability, and Sentiment, click here.
Incyte Corporation (INCY)
INCY is a biopharmaceutical company that engages in the discovery, development, and commercialization of therapies for hematology /oncology, autoimmunity, and inflammation areas. It provides JAKAFI for treating intermediate or high-risk myelofibrosis and polycythemia disease, ICLUSIG to treat chronic myeloid leukemia, and OPZELURA cream for atopic dermatitis.
In terms of forward non-GAAP P/E, INCY is trading at 13.84x, 29.1% lower than the industry average of 19.52x. Also, the stock’s forward EV/Sales and EV/EBIT multiples of 2.34 and 9.10 are 32.9% and 42.9% lower than the industry averages of 3.49 and 15.94, respectively.
INCY’s trailing-12-month EBIT margin of 18.92% is 1,088.8% higher than the industry average of 1.59%. Likewise, the stock’s trailing-12-month ROCE, ROTC, and ROTA of 15.13%, 8.97%, and 10.45% are favorably compared to the respective industry averages of negative 40.01%, 19.75%, and 27.22%.
On May 31, INCY completed the acquisition of Escient Pharmaceuticals, a clinical-stage drug discovery and development company advancing novel small molecule therapeutics for systemic immune and neuro-immune disorders.
"The acquisition of Escient and its first-in-class oral MRGPR antagonists bolsters our Inflammation and Autoimmunity portfolio and our commitment to creating innovative solutions that address the urgent needs of patients living with severe inflammatory diseases," said Hervé Hoppenot, Incyte’s Chief Executive Officer.
In April, INCY and China Medical System Holdings Limited (CMS), through a wholly-owned dermatology medical aesthetic subsidiary of the company (CMS Skinhealth), entered a Collaboration and License Agreement for the development and commercialization of povorcitinib, an oral JAK1 inhibitor, in mainland China, Hong Kong, Macau, Taiwan, and Southeast Asia.
This collaboration will expand the company’s relationship with CMS in the Dermatology space beyond ruxolitinib cream, including two products with the potential to help patients with limited treatment options.
In the first quarter that ended March 31, 2024, INCY’s total revenues grew 8.9% year-over-year to $880.89 million, driven by patient demand growth in the U.S. for Opzelura® (ruxolitinib) cream and Jakafi® (ruxolitinib). The company’s non-GAAP operating income grew 271% from the previous year’s quarter to $161.18 million.
Additionally, the company’s non-GAAP net income and non-GAAP EPS were $145.27 million and $0.64, up 71.8% and 73% year-over-year, respectively.
Street expects INCY’s revenue to increase 5.8% year-over-year to $1.01 billion for the second quarter ending June 2024. The consensus EPS estimate of $1.11 for the ongoing quarter indicates an improvement of 10.4% year-over-year.
Shares of INCY have surged 3.2% over the past month to close the last trading session at $59.94.
INCY’s POWR Ratings reflect its bright growth prospects. The stock has an overall rating of B, which equates to a Buy in our proprietary rating system.
The stock has an A grade for Value and Quality. INCY is ranked #17 out of 356 stocks in the Biotech industry.
Click here to access additional INCY’s ratings (Growth, Momentum, Sentiment, and Stability).
Albertsons Companies, Inc. (ACI)
ACI operates food and drug retail stores that provide grocery products, general merchandise, health and beauty care products, pharmacy, fuel, and other items and services. It operates stores under banners, including Albertsons, Safeway, Pavilions, Tom Thumb, Acme, Shaw's, Star Market, United Supermarkets, Kings Food Markets, and Balducci's Food Lovers Market.
In terms of forward non-GAAP P/E, ACI is trading at 8.09x, 53.1% lower than the industry average of 17.24x. Also, the stock’s forward EV/Sales of 0.32x is 80.8% lower than the 1.67x industry average. Likewise, its forward Price/Sales of 0.15x is 87.6% lower than the industry average of 1.19x.
On June 7, ACI’s retail media arm, Albertsons Media Collective, partnered with Rokt, the prominent e-commerce technology company using machine learning and AI to make transactions more relevant to each shopper, to extend its retail media ecosystem, adding non-endemic ads across its portfolio of brands.
“This partnership allows us to complement our existing retail media network, the Albertsons Media Collective, with non-endemic ads—at scale," stated Kristi Argyilan, SVP, Retail Media, Albertsons Media Collective. "By leveraging Rokt's technology across our portfolio of brands and across the transaction journey, we will be able to drive customer loyalty and deliver an enhanced shopping experience."
During the fourth quarter that ended February 24, 2024, ACI’s net sales and other revenue increased marginally year-over-year to $18.34 billion. Identical sales increased 1% year-over-year, and digital sales rose 24%. Its gross margin grew 1.2% from the year-ago value to $5.14 million. The company reported a net income of $251 million, or $0.43 per share, respectively.
Analysts expect ACI’s revenue for the fiscal year (ending February 2025) to increase 1.2% year-over-year to $80.22 billion. The company’s revenue and EPS are expected to grow 1.7% and 2.8% year-over-year to $81.62 billion and $2.58, respectively. Further, the company surpassed the consensus EPS estimates in three of the trailing four quarters.
ACI’s stock has plunged 2.6% over the past month to close the last trading session at $20.20.
ACI’s robust outlook is reflected in its POWR Ratings. The stock has an overall rating of B, equating to a Buy in our proprietary rating system.
The stock has an A grade for Value and a B for Quality. ACI is ranked #21 among 36 stocks in the A-rated Grocery/Big Box Retailers industry.
Click here to access ACI’s ratings for Stability, Sentiment, Growth, and Momentum.
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EXPE shares were unchanged in premarket trading Thursday. Year-to-date, EXPE has declined -17.94%, versus a 14.25% rise in the benchmark S&P 500 index during the same period.
About the Author: Mangeet Kaur Bouns
Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.
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