Earnings

Critical Comparison: Comcast Corporation (CMCSA) vs. United Technologies Corporation (UTX)

Comcast Corporation (NASDAQ:CMCSA) shares are down more than -1.55% this year and recently increased 1.21% or $0.47 to settle at $39.43. United Technologies Corporation (NYSE:UTX), on the other hand, is down -0.68% year to date as of 02/14/2018. It currently trades at $126.70 and has returned -3.99% during the past week.

Comcast Corporation (NASDAQ:CMCSA) and United Technologies Corporation (NYSE:UTX) are the two most active stocks in the market 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.

Growth

The ability to consistently grow earnings at a high compound rate is a defining characteristic of the best companies for long-term investment. Analysts expect CMCSA to grow earnings at a 8.92% annual rate over the next 5 years. Comparatively, UTX is expected to grow at a 10.00% annual rate. All else equal, UTX’s higher growth rate would imply a greater potential for capital appreciation.



Profitability and Returns

Just, if not more, important than the growth rate is the quality of that growth. Growth can actual be harmful to investors if it comes at the cost of weak profitability and low returns. To adjust for differences in capital structure we’ll use EBITDA margin and Return on Investment (ROI) as measures of profitability and return., compared to an EBITDA margin of 17.76% for United Technologies Corporation (UTX). CMCSA’s ROI is 19.20% while UTX has a ROI of 10.20%. The interpretation is that CMCSA’s business generates a higher return on investment than UTX’s.

Cash Flow 




Cash is king when it comes to investing. CMCSA’s free cash flow (“FCF”) per share for the trailing twelve months was +0.33. Comparatively, UTX’s free cash flow per share was +1.49. On a percent-of-sales basis, CMCSA’s free cash flow was 1.81% while UTX converted 1.99% of its revenues into cash flow. This means that, for a given level of sales, UTX 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. CMCSA has a current ratio of 0.70 compared to 1.30 for UTX. This means that UTX can more easily cover its most immediate liabilities over the next twelve months. CMCSA’s debt-to-equity ratio is 0.94 versus a D/E of 0.93 for UTX. CMCSA is therefore the more solvent of the two companies, and has lower financial risk.

Valuation

CMCSA trades at a forward P/E of 14.10, a P/B of 2.68, and a P/S of 2.17, compared to a forward P/E of 16.20, a P/B of 3.38, and a P/S of 1.72 for UTX. 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 is not necessarily a value stock. Most of the time, a stock is cheap for good reason. A stock only has value if the current price is substantially below the price at which it should trade in the future. CMCSA is currently priced at a -19.65% to its one-year price target of 49.07. Comparatively, UTX is -14.72% relative to its price target of 148.57. This suggests that CMCSA 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 1.80 for CMCSA and 2.40 for UTX, which implies that analysts are more bullish on the outlook for UTX.

Risk and Volatility

Beta is a metric that investors frequently use to analyze a stock’s systematic risk. A beta above 1 implies above average market volatility. Conversely, a stock with a beta below 1 is seen as less risky than the overall market. CMCSA has a beta of 1.07 and UTX’s beta is 1.03. UTX’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. CMCSA has a short ratio of 3.36 compared to a short interest of 3.90 for UTX. This implies that the market is currently less bearish on the outlook for CMCSA.

Summary

United Technologies Corporation (NYSE:UTX) beats Comcast Corporation (NASDAQ:CMCSA) on a total of 7 of the 14 factors compared between the two stocks. UTX is more profitable, has higher cash flow per share, has a higher cash conversion rate, higher liquidity and has lower financial risk. Finally, FCAU has better sentiment signals based on short interest.

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