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Is Coca-Cola European a Great Stock for Value Investors?

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 Coca-Cola European Partners Plc CCE 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:

PE Ratio

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, Coca-Cola European has a trailing twelve months PE ratio of 14.98, 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 20.59. Further, if we focus on the long-term PE trend, Coca-Cola European’s current PE level puts it below its midpoint of 16.12 over the past five years. Moreover, the current P/E stands well below the highs for this stock, suggesting that it could be a solid entry point.



Further, the stock’s PE also compares favorably with the Zacks classified Consumer Staples sector’s trailing twelve months PE ratio, which stands at 22.29. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.
 



We should point out that Coca-Cola European has a forward PE ratio (price relative to this year’s earnings) of 15.62, so it is fair to expect an increase in the company’s share price in the near future.

P/S Ratio

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, Coca-Cola European has a P/S ratio of about 1.89. This is lower than the S&P 500 average, which comes in at 2.79 right now. Also, as we can see in the chart below, this is well below the highs for this stock in particular over the past few years.



Broad Value Outlook

In aggregate, Coca-Cola European 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 Coca-Cola European a solid choice for value investors, and some of its other key metrics make this pretty clear too.

For example, the PEG ratio for Coca-Cola European is just 1.96, a level that a bit lower than the industry average of 2.00. The PEG ratio is a modified PE ratio that takes into account the stock’s earnings growth rate. Clearly, CCE is a solid choice on the value front from multiple angles.

What About the Stock Overall?

While Coca-Cola European might be a good choice for value investors, there are plenty of other factors to consider before investing in this name. In particular, it is worth noting that the company has a Growth grade of ‘B’ and a Momentum score of ‘A’. This gives CCE a Zacks VGM score—or its overarching fundamental grade—of ‘A’. (You can read more about the Zacks Style Scores here >>)

Meanwhile, the company’s recent earnings estimates have been mixed at best. The current quarter has seen no upward revisions in the past sixty days, compared to one lower, while the full year estimate has seen one upward revision with no downward revisions in the same time period.

This has had a slightly positive impact on the consensus estimate, as the full year estimate has inched higher by about 1%, while the current quarter estimate has been stable in the past two months. You can see the consensus estimate trend and recent price action for the stock in the chart below:

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Coca-Cola European Partners PLC Price and Consensus
 

Coca-Cola European Partners PLC Price and Consensus | Coca-Cola European Partners PLC Quote

However, this somewhat bullish trend has likely not yet been reflected in the stock, as we have just a Zacks Rank #3 (Hold), which indicates expectations of in-line performance in the near term. Nonetheless, the positive analyst sentiment hints at favorable near-term prospects.

Bottom Line

Clearly, Coca-Cola European is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. However, with a sluggish industry rank (Bottom 29% out of over 250 industries) and a Zacks Rank #3, it is hard to get too excited about this company overall. In fact, over the past two years, the Zacks categorized Beverages – Soft Drinks industry has clearly underperformed the broader market, as you can see below:



So, value investors might want to wait for the broader factors to turn favorable for the company, but once that happens, this stock could be a compelling pick.

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