Conduent Incorporated (NYSE:CNDT) shares are up more than 7.79% this year and recently increased 0.19% or $0.03 to settle at $16.06. Verisk Analytics, Inc. (NASDAQ:VRSK), on the other hand, is up 18.82% year to date as of 12/27/2017. It currently trades at $96.45 and has returned 0.13% during the past week.
Conduent Incorporated (NYSE:CNDT) and Verisk Analytics, Inc. (NASDAQ:VRSK) are the two most active stocks in the Business Services industry based on today’s trading volumes. To determine if one is a better investment than the other, we will compare the two companies’ growth, profitability, risk, return, and valuation characteristics, as well as their analyst ratings and sentiment signals.
The ability to consistently grow earnings at a high compound rate is a defining characteristic of the best companies for long-term investment. Analysts expect CNDT to grow earnings at a 6.00% annual rate over the next 5 years. Comparatively, VRSK is expected to grow at a 10.32% annual rate. All else equal, VRSK’s higher growth rate would imply a greater potential for capital appreciation.
Profitability and Returns
Growth doesn’t mean much if it comes at the cost of weak profitability. To adjust for differences in capital structure we’ll use EBITDA margin and Return on Investment (ROI) as measures of profitability and return. , compared to an EBITDA margin of 44.18% for Verisk Analytics, Inc. (VRSK). CNDT’s ROI is -18.20% while VRSK has a ROI of 15.20%. The interpretation is that VRSK’s business generates a higher return on investment than CNDT’s.
Earnings don’t always accurately reflect the amount of cash that a company brings in. CNDT’s free cash flow (“FCF”) per share for the trailing twelve months was +0.35. Comparatively, VRSK’s free cash flow per share was +0.72. On a percent-of-sales basis, CNDT’s free cash flow was 1.15% while VRSK converted 5.95% of its revenues into cash flow. This means that, for a given level of sales, VRSK is able to generate more free cash flow for investors.
Liquidity and Financial Risk
Liquidity and leverage ratios are important because they reveal the financial health of a company. CNDT has a current ratio of 1.70 compared to 0.50 for VRSK. This means that CNDT can more easily cover its most immediate liabilities over the next twelve months. CNDT’s debt-to-equity ratio is 0.62 versus a D/E of 1.72 for VRSK. VRSK is therefore the more solvent of the two companies, and has lower financial risk.
CNDT trades at a forward P/E of 16.44, a P/B of 0.99, and a P/S of 0.56, compared to a forward P/E of 27.72, a P/B of 9.49, and a P/S of 7.65 for VRSK. CNDT is the cheaper of the two stocks on an earnings, book value and sales basis. Given that earnings are what matter most to investors, analysts tend to place a greater weight on the P/E.
Analyst Price Targets and Opinions
A cheap stock isn’t a good investment if the stock is priced accurately. To get a sense of “value” we must compare the current price to some measure of intrinsic value such as a price target. CNDT is currently priced at a -16.4% to its one-year price target of 19.21. Comparatively, VRSK is -0.17% relative to its price target of 96.61. This suggests that CNDT is the better investment over the next year.
The average investment recommendation on a scale of 1 to 5 (1 being a strong buy, 3 a hold, and 5 a sell) is 2.40 for CNDT and 2.40 for VRSK, which implies that analysts are equally bullish on their outlook for the two stocks.
Insider Activity and Investor Sentiment
Analysts often look at short interest, or the percentage of a company’s float currently being shorted by investors, to aid in their outlook for a particular stock. CNDT has a short ratio of 4.13 compared to a short interest of 5.30 for VRSK. This implies that the market is currently less bearish on the outlook for CNDT.
Conduent Incorporated (NYSE:CNDT) beats Verisk Analytics, Inc. (NASDAQ:VRSK) on a total of 8 of the 14 factors compared between the two stocks. CNDT higher liquidity and has lower financial risk. In terms of valuation, CNDT is the cheaper of the two stocks on an earnings, book value and sales basis, CNDT is more undervalued relative to its price target. Finally, CNDT has better sentiment signals based on short interest.