Earnings

Critical Comparison: New York Community Bancorp, Inc. (NYCB) vs. D.R. Horton, Inc. (DHI)

New York Community Bancorp, Inc. (NYSE:NYCB) shares are up more than 6.37% this year and recently increased 2.29% or $0.31 to settle at $13.85. D.R. Horton, Inc. (NYSE:DHI), on the other hand, is down -11.06% year to date as of 02/14/2018. It currently trades at $45.42 and has returned -1.88% during the past week.

New York Community Bancorp, Inc. (NYSE:NYCB) and D.R. Horton, Inc. (NYSE:DHI) are the two most active stocks in the market based on today’s trading volumes. To determine if one is a better investment than the other, we will compare the two companies’ growth, profitability, risk, return, and valuation characteristics, as well as their analyst ratings and sentiment signals.

Growth

The ability to consistently grow earnings at a high compound rate is a defining characteristic of the best companies for long-term investment. Comparatively, DHI is expected to grow at a 18.53% annual rate. All else equal, DHI’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. EBITDA margin of 12.11% for D.R. Horton, Inc. (DHI). NYCB’s ROI is 14.90% while DHI has a ROI of 9.80%. The interpretation is that NYCB’s business generates a higher return on investment than DHI’s.

Cash Flow 




The amount of free cash flow available to investors is ultimately what determines the value of a stock. On a percent-of-sales basis, NYCB’s free cash flow was 0% while DHI converted -1.15% of its revenues into cash flow. This means that, for a given level of sales, NYCB is able to generate more free cash flow for investors.

Financial Risk

NYCB’s debt-to-equity ratio is 0.06 versus a D/E of 0.41 for DHI. DHI is therefore the more solvent of the two companies, and has lower financial risk.

Valuation

NYCB trades at a forward P/E of 15.02, a P/B of 1.08, and a P/S of 4.10, compared to a forward P/E of 10.54, a P/B of 2.17, and a P/S of 1.19 for DHI. NYCB is the cheaper of the two stocks on book value basis but is expensive in terms of P/E and P/S ratio. 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. NYCB is currently priced at a -1.49% to its one-year price target of 14.06. Comparatively, DHI is -20.04% relative to its price target of 56.80. This suggests that DHI 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 NYCB and 2.30 for DHI, which implies that analysts are more bullish on the outlook for NYCB.

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. NYCB has a beta of 0.63 and DHI’s beta is 1.09. NYCB’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. NYCB has a short ratio of 8.76 compared to a short interest of 1.96 for DHI. This implies that the market is currently less bearish on the outlook for DHI.

Summary

D.R. Horton, Inc. (NYSE:DHI) beats New York Community Bancorp, Inc. (NYSE:NYCB) on a total of 7 of the 14 factors compared between the two stocks. DHI generates a higher return on investment and is more profitable. In terms of valuation, DHI is the cheaper of the two stocks on an earnings and sales basis, DHI is more undervalued relative to its price target. Finally, DHI has better sentiment signals based on short interest.

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