Banco Bradesco S.A. (NYSE:BBD) shares are up more than 15.94% this year and recently increased 2.86% or $0.33 to settle at $11.86. Boston Scientific Corporation (NYSE:BSX), on the other hand, is up 8.15% year to date as of 02/14/2018. It currently trades at $26.81 and has returned 1.86% during the past week.
Banco Bradesco S.A. (NYSE:BBD) and Boston Scientific Corporation (NYSE:BSX) 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.
Companies that can increase earnings at a high compound rate over time are attractive to investors. Analysts expect BBD to grow earnings at a 13.60% annual rate over the next 5 years. Comparatively, BSX is expected to grow at a 10.18% annual rate. All else equal, BBD’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 20.82% for Boston Scientific Corporation (BSX).
The value of a stock is simply the present value of its future free cash flows. BBD’s free cash flow (“FCF”) per share for the trailing twelve months was +1.68. Comparatively, BSX’s free cash flow per share was -. On a percent-of-sales basis, BBD’s free cash flow was 24.21% while BSX converted 0% of its revenues into cash flow. This means that, for a given level of sales, BBD is able to generate more free cash flow for investors.
BBD trades at a forward P/E of 10.22, a P/B of 2.11, and a P/S of 3.11, compared to a forward P/E of 17.33, a P/B of 4.85, and a P/S of 4.07 for BSX. BBD 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
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. BBD is currently priced at a -0.17% to its one-year price target of 11.88. Comparatively, BSX is -15.16% relative to its price target of 31.60. This suggests that BSX 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 2.60 for BBD and 1.70 for BSX, which implies that analysts are more bullish on the outlook for BBD.
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. BBD has a short ratio of 0.80 compared to a short interest of 1.54 for BSX. This implies that the market is currently less bearish on the outlook for BBD.
Banco Bradesco S.A. (NYSE:BBD) beats Boston Scientific Corporation (NYSE:BSX) on a total of 9 of the 14 factors compared between the two stocks. BBD is growing fastly, has higher cash flow per share, has a higher cash conversion rate and has lower financial risk. In terms of valuation, BBD is the cheaper of the two stocks on an earnings, book value and sales basis, Finally, BBD has better sentiment signals based on short interest.