CBL & Associates Properties, Inc (NYSE:CBL) shares are down more than -0.18% this year and recently increased 0.71% or $0.04 to settle at $5.65. Taubman Centers, Inc. (NYSE:TCO), on the other hand, is down -2.54% year to date as of 01/26/2018. It currently trades at $63.77 and has returned 2.76% during the past week.
CBL & Associates Properties, Inc (NYSE:CBL) and Taubman Centers, Inc. (NYSE:TCO) are the two most active stocks in the REIT – Retail industry based on today’s trading volumes. Investors are clearly interested in the two names, but is one a better choice than the other? We will compare the two companies across growth, profitability, risk, valuation, and insider trends to answer this question.
The ability to grow earnings at a compound rate over time is a crucial determinant of investment value. Analysts expect CBL to grow earnings at a 4.90% annual rate over the next 5 years. Comparatively, TCO is expected to grow at a 5.84% annual rate. All else equal, TCO’s higher growth rate would imply a greater potential for capital appreciation.
Profitability and Returns
A high growth rate isn’t necessarily valuable to investors. In fact, companies that overinvest in low return projects just to achieve a high growth rate can actually destroy shareholder value. Profitability and returns are a measure of the quality of a company’s business and its growth opportunities. We’ll use EBITDA margin and Return on Investment (ROI) to measure this., compared to an EBITDA margin of 52.37% for Taubman Centers, Inc. (TCO). CBL’s ROI is 4.50% while TCO has a ROI of 2.90%. The interpretation is that CBL’s business generates a higher return on investment than TCO’s.
The value of a stock is simply the present value of its future free cash flows. CBL’s free cash flow (“FCF”) per share for the trailing twelve months was +0.17. Comparatively, TCO’s free cash flow per share was +2.93. On a percent-of-sales basis, CBL’s free cash flow was 2.83% while TCO converted 0.03% of its revenues into cash flow. This means that, for a given level of sales, CBL is able to generate more free cash flow for investors.
CBL’s debt-to-equity ratio is 3.68 versus a D/E of 238.77 for TCO. TCO is therefore the more solvent of the two companies, and has lower financial risk.
CBL trades at a forward P/E of 17.02, a P/B of 0.84, and a P/S of 1.01, compared to a forward P/E of 69.09, a P/B of 265.71, and a P/S of 6.21 for TCO. CBL 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
When investing it’s crucial to distinguish between price and value. As Warren Buffet said, “price is what you pay, value is what you get”. CBL is currently priced at a 9.07% to its one-year price target of 5.18. Comparatively, TCO is 3.62% relative to its price target of 61.54. This suggests that TCO 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 3.70 for CBL and 3.00 for TCO, which implies that analysts are more bullish on the outlook for CBL.
Risk and Volatility
Beta is an important measure that gives investors a sense of the market risk associated with a particular stock. A beta above 1 signals above average market risk, while a beta below 1 implies below average volatility. CBL has a beta of 1.11 and TCO’s beta is 0.56. TCO’s shares are therefore the less volatile of the two stocks.
Insider Activity and Investor Sentiment
The analysis of insider buying and selling trends can be extended to the aggregate level. Short interest, which represents the percentage of a stock’s tradable shares currently being shorted, captures what the market as a whole feels about a stock. CBL has a short ratio of 6.59 compared to a short interest of 5.74 for TCO. This implies that the market is currently less bearish on the outlook for TCO.
CBL & Associates Properties, Inc (NYSE:CBL) beats Taubman Centers, Inc. (NYSE:TCO) on a total of 8 of the 14 factors compared between the two stocks. CBL is more profitable, generates a higher return on investment, has a higher cash conversion rate, higher liquidity and has lower financial risk. In terms of valuation, CBL is the cheaper of the two stocks on an earnings, book value and sales basis, Finally, SPG has better sentiment signals based on short interest.