EVERTEC INC (NYSE:EVTC) Presents a Compelling Value Investment Case

In the world of investing, few strategies have lasted as long or shown as much success as value investing. Fundamentally, this method looks for companies selling for less than their actual value, frequently found using appealing valuation measures such as low price-to-earnings ratios. The aim is to buy these underrated assets and keep them until the market corrects their price. An important part of a good value investment is confirming the low price is not misleading; the company should also show basic strength, reliable earnings, and the capacity for later expansion to support the investment idea. This orderly hunt for good quality at a low price is what motivates searches for "decent value" stocks.

One company that appears from such an orderly search is EVERTEC INC (NYSE:EVTC), a top provider of transaction processing services in Latin America and the Caribbean. The company’s basic profile, as shown in its detailed ChartMill report, makes a strong case for investors who focus on value while also seeking business quality.

Appealing Valuation Measures

The main attraction for a value investor is a stock priced modestly compared to its financial results. EVERTEC is notable here, receiving a good Valuation Rating of 7 out of 10. The figures show a clear picture of a company trading at a significant discount compared to both similar companies and the wider market.

• Price-to-Earnings (P/E) Ratio: At 8.37, EVERTEC's P/E ratio is seen as fair and is less expensive than about 75% of similar companies in Financial Services. This differs greatly from the S&P 500's average P/E of 26.54.
• Forward P/E Ratio: An even stronger number is the forward P/E of 7.77, which is seen as very inexpensive and is lower than 71% of industry rivals.
• Enterprise Value to EBITDA & Price/Free Cash Flow: The company also shows good comparisons on these important valuation multiples, trading at a lower price than about 74% and 69% of its industry, in turn.

For a value investor, these measures indicate the market might be setting too low a price on EVERTEC's earnings and cash flow, forming a possible chance.

Good Financial Condition and Earnings

A low valuation is not useful if the company is financially unstable. This is where the "margin of safety" idea is important, needing investors to evaluate the company's steadiness. EVERTEC's Financial Health Rating of 6 and Profitability Rating of 6 point to a business with a solid base.

Financial Condition Points:

• Strong Liquidity: The company does very well in short-term financial steadiness, with a Current Ratio and Quick Ratio both at 2.91. This puts it in the better part of its industry, doing better than over 82% of similar companies and showing no issue meeting short-term debts.
• Debt Points: While liquidity is very good, investors should note the company has a higher amount of debt, with a Debt/Equity ratio of 1.60. However, its Altman-Z score points to little short-term bankruptcy danger, and it does better than most of its industry on this measure.

Earnings Strengths:

• EVERTEC shows good returns on capital, with a Return on Equity (ROE) of 22.01% that is better than 85% of its industry.
• Its Operating Margin of 21.49% is also sound, doing better than 70% of similar companies.
• The report states that while these margins have faced some recent reduction, they stay at levels that show an effective and profitable business.

This mix of high liquidity and sound earnings gives an important cushion, lowering the danger that the low valuation signals basic trouble.

Steady Expansion Path

A simple value opportunity can sometimes miss a growth driver. EVERTEC, however, shows a fair Growth Rating of 5, backed by a history of increase. This growth aspect is key as it can be the force that pushes future earnings and, finally, market price correction.

• Previous Results: Over the last year, the company increased its Earnings Per Share (EPS) by 17.16% and Revenue by 9.67%. The longer, multi-year growth rates for both EPS and Revenue are also good, staying near 11%.
• Later Expectations: Analyst forecasts point to continued, though more measured, growth. Revenue and EPS are expected to grow at an average yearly rate near 7% and 7.7%, in turn, in the next few years.

This shown and expected growth suggests EVERTEC is not a still business, but one that is increasing its operations—a good signal for investors waiting for the market to adjust the stock price.

Summary: A Possibility for the Value Portfolio

EVERTEC shows a profile that fits the ideas of value investing. It is priced at a major discount to the market and its sector, as shown by its low earnings multiples. Importantly, this discount is not combined with financial frailty; the company displays strong liquidity, sound earnings, and a steady record of growth. While investors should pay attention to its debt amounts and the noted slowing in later growth forecasts, the full picture is one of a basically healthy business that might be missed by the market.

For investors using a method that looks for underrated companies with good basics, EVERTEC deserves more study. Its profile suggests it could be a stock where the present price does not completely show the actual business value, giving the possibility for gain as that difference narrows with time.

Find More Value Possibilities This review of EVERTEC was started by a methodical search for stocks that fit certain value-focused conditions. If you want to search for other companies that have these traits of good valuation, sound condition, profitability, and growth, you can look for similar possibilities using the Decent Value Stocks screen on ChartMill.

Disclaimer: This article is for information only and is not financial advice, a suggestion, or an offer or request to buy or sell any securities. The information given is based on supplied data and should not be the only reason for any investment choice. Investors should do their own separate research and talk with a qualified financial advisor before making any investment.