Exelon Corporation (NYSE:EXC) shares are down more than -7.13% this year and recently decreased -1.11% or -$0.41 to settle at $36.60. CSRA Inc. (NYSE:CSRA), on the other hand, is up 35.39% year to date as of 02/14/2018. It currently trades at $40.51 and has returned 29.22% during the past week.
Exelon Corporation (NYSE:EXC) and CSRA Inc. (NYSE:CSRA) are the two most active stocks in the market 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.
One of the key things investors look for in a company is the ability to grow earnings at a high compound rate over time. Analysts expect EXC to grow earnings at a 3.19% annual rate over the next 5 years. Comparatively, CSRA is expected to grow at a 10.00% annual rate. All else equal, CSRA’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. Exelon Corporation (EXC) has an EBITDA margin of 30.41%. This suggests that EXC underlying business is more profitable EXC’s ROI is 3.80% while CSRA has a ROI of 10.10%. The interpretation is that CSRA’s business generates a higher return on investment than EXC’s.
The value of a stock is simply the present value of its future free cash flows. EXC’s free cash flow (“FCF”) per share for the trailing twelve months was -0.55. Comparatively, CSRA’s free cash flow per share was +0.58. On a percent-of-sales basis, EXC’s free cash flow was -1.58% while CSRA converted 1.9% of its revenues into cash flow. This means that, for a given level of sales, CSRA 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. EXC has a current ratio of 1.00 compared to 1.00 for CSRA. This means that EXC can more easily cover its most immediate liabilities over the next twelve months. EXC’s debt-to-equity ratio is 1.28 versus a D/E of 4.80 for CSRA. CSRA is therefore the more solvent of the two companies, and has lower financial risk.
EXC trades at a forward P/E of 12.20, a P/B of 1.25, and a P/S of 1.05, compared to a forward P/E of 17.52, a P/B of 10.60, and a P/S of 1.31 for CSRA. EXC 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. EXC is currently priced at a -14% to its one-year price target of 42.56. Comparatively, CSRA is 5.6% relative to its price target of 38.36. This suggests that EXC 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 2.00 for EXC and 2.20 for CSRA, which implies that analysts are more bullish on the outlook for CSRA.
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. EXC has a short ratio of 3.41 compared to a short interest of 1.54 for CSRA. This implies that the market is currently less bearish on the outlook for CSRA.
Exelon Corporation (NYSE:EXC) beats CSRA Inc. (NYSE:CSRA) on a total of 8 of the 14 factors compared between the two stocks. EXC is more profitable, higher liquidity and has lower financial risk. In terms of valuation, EXC is the cheaper of the two stocks on an earnings, book value and sales basis, EXC is more undervalued relative to its price target. Finally, FOXA has better sentiment signals based on short interest.