Earnings

Critical Comparison: Spirit Realty Capital, Inc. (SRC) vs. Barclays PLC (BCS)

Spirit Realty Capital, Inc. (NYSE:SRC) shares are down more than -11.19% this year and recently increased 1.06% or $0.08 to settle at $7.62. Barclays PLC (NYSE:BCS), on the other hand, is up 2.11% year to date as of 02/14/2018. It currently trades at $11.13 and has returned 4.80% during the past week.

Spirit Realty Capital, Inc. (NYSE:SRC) and Barclays PLC (NYSE:BCS) are the two most active stocks in the market based on today’s trading volumes. Investor interest in the two stocks is clearly very high, but which is the better investment? To answer this question, we will compare the two companies across growth, profitability, risk, and valuation metrics, and also examine their analyst ratings and insider activity trends.

Growth

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 SRC to grow earnings at a 37.47% annual rate over the next 5 years. Comparatively, BCS is expected to grow at a 18.60% annual rate. All else equal, SRC’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. Spirit Realty Capital, Inc. (SRC) has an EBITDA margin of 68.9%. This suggests that SRC underlying business is more profitable SRC’s ROI is 0.60% while BCS has a ROI of 3.90%. The interpretation is that BCS’s business generates a higher return on investment than SRC’s.

Cash Flow 




Cash is king when it comes to investing. SRC’s free cash flow (“FCF”) per share for the trailing twelve months was +0.01. Comparatively, BCS’s free cash flow per share was -. On a percent-of-sales basis, SRC’s free cash flow was 0% while BCS converted 0% of its revenues into cash flow. This means that, for a given level of sales, SRC is able to generate more free cash flow for investors.

Financial Risk

SRC’s debt-to-equity ratio is 1.19 versus a D/E of 1.59 for BCS. BCS is therefore the more solvent of the two companies, and has lower financial risk.

Valuation

SRC trades at a forward P/E of 30.00, a P/B of 1.07, and a P/S of 5.14, compared to a forward P/E of 11.24, a P/B of 0.53, and a P/S of 1.84 for BCS. SRC is the expensive 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

When investing it’s crucial to distinguish between price and value. As Warren Buffet said, “price is what you pay, value is what you get”. SRC is currently priced at a -17.44% to its one-year price target of 9.23. Comparatively, BCS is -9.66% relative to its price target of 12.32. This suggests that SRC 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 2.40 for SRC and 1.00 for BCS, which implies that analysts are more bullish on the outlook for SRC.

Risk and Volatility

Beta is an important measure that gives investors a sense of the market risk associated with a particular stock. A beta above 1 signals above average market risk, while a beta below 1 implies below average volatility. SRC has a beta of 0.57 and BCS’s beta is 0.86. SRC’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.SRC has a short ratio of 1.86 compared to a short interest of 1.38 for BCS. This implies that the market is currently less bearish on the outlook for BCS.

Summary

Spirit Realty Capital, Inc. (NYSE:SRC) beats Barclays PLC (NYSE:BCS) on a total of 7 of the 14 factors compared between the two stocks. SRC is growing fastly, is more profitable, has higher cash flow per share, higher liquidity and has lower financial risk. SRC is more undervalued relative to its price target. Finally, VER has better sentiment signals based on short interest.

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