Commercial Banking company Credicorp is standing out today by surging to $147.41 and marking a 4.3% change. BAP is -6.79% below its average analyst target price of $158.14, which implies there is more upside for the stock.
As such, the average analyst rates it at buy. Over the last year, Credicorp shares have outperformed the S&P 500 by 9.0%, with a price change of 12.3%.
Credicorp Ltd. provides various financial, insurance, and health services and products primarily in Peru and internationally.
Credicorp's trailing 12 month P/E ratio is 8.9, based on its trailing EPS of $16.52. The company has a forward P/E ratio of 8.0 according to its forward EPS of $18.51 -- which is an estimate of what its earnings will look like in the next quarter.
The P/E ratio is the company's share price divided by its earnings per share. In other words, it represents how much investors are willing to spend for each dollar of the company's earnings (revenues minus the cost of goods sold, taxes, and overhead). As of the first quarter of 2023, the finance sector has an average P/E ratio of 14.34, and the average for the S&P 500 is 15.97.
BAP’s price to earnings ratio can be divided by its projected five-year growth rate, to give us the price to earnings, or PEG ratio. This allows us to put its earnings valuation in the context of its growth expectations which is useful because companies with low P/E ratios often have low growth, which means they actually do not present an attractive value.
When we perform the calculation for Credicorp, we obtain a PEG ratio of 7.75, which indicates that the company is overvalued compared to its growth prospects. The weakness with PEG ratios is that they rely on expected growth estimates, which of course may not turn out as expected.
Credicorp's financial viability can also be assessed through a review of its free cash flow trends. Free cash flow refers to the company's operating cash flows minus its capital expenditures, which are expenses related to the maintenance of fixed assets such as land, infrastructure, and equipment. Over the last four years, the trends have been as follows:
| Date Reported | Cash Flow from Operations ($ k) | Capital expenditures ($ k) | Free Cashflow ($ k) | YoY Growth (%) |
|---|---|---|---|---|
| 2022-12-31 | -1,134,877 | -896,370 | -2,031,247 | -160.94 |
| 2021-12-31 | 3,972,994 | -640,034 | 3,332,960 | -72.35 |
| 2020-12-31 | 12,686,823 | -633,361 | 12,053,462 | 87.54 |
| 2019-12-31 | 6,933,711 | -506,733 | 6,426,978 | n/a |
- Average free cash flow: $4.95 Billion
- Average free cash flown growth rate: -33.7 %
- Coefficient of variability (lower numbers indicating more stability): 119.0 %
If it weren't negative, the free cash flow would represent the amount of money available for reinvestment in the business, or for payments to equity investors in the form of a dividend. While a negative cash flow for one or two quarters is not a sign of financial troubles for BAP, a long term trend of negative or highly erratic cash flow levels may indicate a struggling business or a mismanaged company.
Another valuation metric for analyzing a stock is its Price to Book (P/B) Ratio, which consists in its share price divided by its book value per share. The book value refers to the present liquidation value of the company, as if it sold all of its assets and paid off all debts.
Credicorp's P/B ratio of 0.41 indicates that the market value of the company is less than the value of its assets -- a potential indicator of an undervalued stock. The average P/B ratio of the Finance sector was 1.57 as of the first quarter of 2023.
Credicorp is by most measures undervalued because it has a very low P/E ratio, an exceptionally low P/B ratio, and generally positive cash flows with a downwards trend. The stock has poor growth indicators because it has a negative PEG ratio and weak net margins with a stable trend.
