Zions Bancorporation (NASDAQ:ZION) shares are up more than 2.42% this year and recently increased 0.81% or $0.42 to settle at $52.06. Umpqua Holdings Corporation (NASDAQ:UMPQ), on the other hand, is up 3.03% year to date as of 02/12/2018. It currently trades at $21.43 and has returned 2.10% during the past week.
Zions Bancorporation (NASDAQ:ZION) and Umpqua Holdings Corporation (NASDAQ:UMPQ) are the two most active stocks in the Regional – Pacific Banks industry based on today’s trading volumes. We will compare the two companies based on the strength of various metrics, including growth, profitability, risk, return, and valuation to determine if one is a better investment than the other.
Companies that can increase earnings at a high compound rate over time are attractive to investors. Analysts expect ZION to grow earnings at a 10.00% annual rate over the next 5 years. Comparatively, UMPQ is expected to grow at a 8.50% annual rate. All else equal, ZION’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 45.09% for Umpqua Holdings Corporation (UMPQ). ZION’s ROI is 20.60% while UMPQ has a ROI of 13.10%. The interpretation is that ZION’s business generates a higher return on investment than UMPQ’s.
The value of a stock is simply the present value of its future free cash flows. On a percent-of-sales basis, ZION’s free cash flow was 0% while UMPQ converted 0% of its revenues into cash flow. This means that, for a given level of sales, ZION is able to generate more free cash flow for investors.
ZION’s debt-to-equity ratio is 0.05 versus a D/E of 0.31 for UMPQ. UMPQ is therefore the more solvent of the two companies, and has lower financial risk.
ZION trades at a forward P/E of 13.04, a P/B of 1.45, and a P/S of 4.76, compared to a forward P/E of 13.50, a P/B of 1.18, and a P/S of 5.03 for UMPQ. 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. ZION is currently priced at a -10.98% to its one-year price target of 58.48. Comparatively, UMPQ is -8.34% relative to its price target of 23.38. This suggests that ZION 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 2.30 for ZION and 2.40 for UMPQ, which implies that analysts are more bullish on the outlook for UMPQ.
Risk and Volatility
Analyst use beta to measure a stock’s volatility relative to the overall market. Stocks with a beta above 1 tend to have bigger swings in price than the market as a whole, the opposite being the case for stocks with a beta below 1. ZION has a beta of 1.33 and UMPQ’s beta is 1.03. UMPQ’s shares are therefore the less volatile of the two stocks.
Insider Activity and Investor Sentiment
Comparing the number of shares sold short to the float is a method analysts often use to get a reading on investor sentiment. ZION has a short ratio of 8.61 compared to a short interest of 3.17 for UMPQ. This implies that the market is currently less bearish on the outlook for UMPQ.
Zions Bancorporation (NASDAQ:ZION) beats Umpqua Holdings Corporation (NASDAQ:UMPQ) on a total of 8 of the 14 factors compared between the two stocks. ZION is growing fastly, generates a higher return on investment, higher liquidity and has lower financial risk. In terms of valuation, ZION is the cheaper of the two stocks on an earnings and sales basis, ZION is more undervalued relative to its price target. Finally, FNB has better sentiment signals based on short interest.