Valley National Bancorp (NYSE:VLY) shares are up more than 8.11% this year and recently increased 0.41% or $0.05 to settle at $12.13. Fulton Financial Corporation (NASDAQ:FULT), on the other hand, is up 0.28% year to date as of 02/12/2018. It currently trades at $17.95 and has returned 1.13% during the past week.
Valley National Bancorp (NYSE:VLY) and Fulton Financial Corporation (NASDAQ:FULT) are the two most active stocks in the Regional – Northeast 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 VLY to grow earnings at a 5.00% annual rate over the next 5 years. Comparatively, FULT is expected to grow at a -2.30% annual rate. All else equal, VLY’s higher growth rate would imply a greater potential for capital appreciation.
Profitability and Returns
Growth in and of itself is not necessarily valuable, and it can even be harmful to shareholders if companies overinvest in unprofitable projects in pursuit of that growth. We will use EBITDA margin and Return on Investment (ROI), which adjust for differences in capital structure, as measure of profitability and return. , compared to an EBITDA margin of 40.01% for Fulton Financial Corporation (FULT). VLY’s ROI is 20.50% while FULT has a ROI of 18.60%. The interpretation is that VLY’s business generates a higher return on investment than FULT’s.
Earnings don’t always accurately reflect the amount of cash that a company brings in. On a percent-of-sales basis, VLY’s free cash flow was 0% while FULT converted 0% of its revenues into cash flow. This means that, for a given level of sales, VLY is able to generate more free cash flow for investors.
VLY’s debt-to-equity ratio is 0.97 versus a D/E of 0.17 for FULT. VLY is therefore the more solvent of the two companies, and has lower financial risk.
VLY trades at a forward P/E of 12.03, a P/B of 1.38, and a P/S of 3.76, compared to a forward P/E of 13.05, a P/B of 1.41, and a P/S of 4.70 for FULT. VLY 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
Investors often compare a stock’s current price to an analyst price target to get a sense of the potential upside within the next year. VLY is currently priced at a -12.29% to its one-year price target of 13.83. Comparatively, FULT is -7.62% relative to its price target of 19.43. This suggests that VLY 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 2.50 for VLY and 3.10 for FULT, which implies that analysts are more bullish on the outlook for FULT.
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. VLY has a beta of 0.90 and FULT’s beta is 0.94. VLY’s shares are therefore the less volatile of the two stocks.
Insider Activity and Investor Sentiment
Short interest is another tool that analysts use to gauge investor sentiment. It represents the percentage of a stock’s tradable shares that are being shorted. VLY has a short ratio of 5.55 compared to a short interest of 4.95 for FULT. This implies that the market is currently less bearish on the outlook for FULT.
Valley National Bancorp (NYSE:VLY) beats Fulton Financial Corporation (NASDAQ:FULT) on a total of 10 of the 14 factors compared between the two stocks. VLY is growing fastly, is more profitable, generates a higher return on investment and higher liquidity. In terms of valuation, VLY is the cheaper of the two stocks on an earnings, book value and sales basis, VLY is more undervalued relative to its price target. Finally, FNB has better sentiment signals based on short interest.