Associated Banc-Corp (NYSE:ASB) shares are down more than -5.31% this year and recently increased 0.63% or $0.15 to settle at $24.05. Old National Bancorp (NASDAQ:ONB), on the other hand, is down -1.43% year to date as of 02/12/2018. It currently trades at $17.20 and has returned 1.78% during the past week.
Associated Banc-Corp (NYSE:ASB) and Old National Bancorp (NASDAQ:ONB) are the two most active stocks in the Regional – Midwest Banks industry based on today’s trading volumes. The market is clearly enthusiastic about both these stocks, but which is the better investment? To answer this, we will compare the two companies based on the strength of their growth, profitability, risk, returns, valuation, analyst recommendations, and insider trends.
The ability to grow earnings at a compound rate over time is a crucial determinant of investment value. Analysts expect ASB to grow earnings at a 2.75% annual rate over the next 5 years. Comparatively, ONB is expected to grow at a 7.10% annual rate. All else equal, ONB’s higher growth rate would imply a greater potential for capital appreciation.
Profitability and Returns
Growth isn’t very attractive to investors if companies are sacrificing profitability and shareholder returns to achieve that growth. We will use EBITDA margin and Return on Investment (ROI), which control for differences in capital structure between the two companies, to measure profitability and return., compared to an EBITDA margin of 44.71% for Old National Bancorp (ONB). ASB’s ROI is 16.90% while ONB has a ROI of 12.80%. The interpretation is that ASB’s business generates a higher return on investment than ONB’s.
Earnings don’t always accurately reflect the amount of cash that a company brings in. ASB’s free cash flow (“FCF”) per share for the trailing twelve months was +0.55. Comparatively, ONB’s free cash flow per share was -. On a percent-of-sales basis, ASB’s free cash flow was 7.77% while ONB converted 0% of its revenues into cash flow. This means that, for a given level of sales, ASB is able to generate more free cash flow for investors.
ASB’s debt-to-equity ratio is 0.16 versus a D/E of 0.12 for ONB. ASB is therefore the more solvent of the two companies, and has lower financial risk.
ASB trades at a forward P/E of 12.38, a P/B of 1.18, and a P/S of 4.05, compared to a forward P/E of 12.26, a P/B of 1.22, and a P/S of 4.58 for ONB. 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. ASB is currently priced at a -10.66% to its one-year price target of 26.92. Comparatively, ONB is -10.42% relative to its price target of 19.20. This suggests that ASB 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 2.90 for ASB and 2.60 for ONB, which implies that analysts are more bullish on the outlook for ASB.
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. ASB has a beta of 0.98 and ONB’s beta is 0.80. ONB’s shares are therefore the less volatile of the two stocks.
Insider Activity and Investor Sentiment
Short interest, or the percentage of a stock’s tradable shares currently being shorted, is another metric investors use to get a pulse on sentiment.ASB has a short ratio of 3.52 compared to a short interest of 7.22 for ONB. This implies that the market is currently less bearish on the outlook for ASB.
Associated Banc-Corp (NYSE:ASB) beats Old National Bancorp (NASDAQ:ONB) on a total of 9 of the 14 factors compared between the two stocks. ASB is more profitable, generates a higher return on investment, has higher cash flow per share, has a higher cash conversion rate and higher liquidity. In terms of valuation, ASB is the cheaper of the two stocks on book value and sales basis, ASB is more undervalued relative to its price target. Finally, ASB has better sentiment signals based on short interest.