Earnings

Critical Comparison: FirstEnergy Corp. (FE) vs. Bed Bath & Beyond Inc. (BBBY)

FirstEnergy Corp. (NYSE:FE) shares are up more than 7.51% this year and recently increased 0.49% or $0.16 to settle at $32.92. Bed Bath & Beyond Inc. (NASDAQ:BBBY), on the other hand, is down -1.64% year to date as of 02/22/2018. It currently trades at $21.63 and has returned -5.09% during the past week.

FirstEnergy Corp. (NYSE:FE) and Bed Bath & Beyond Inc. (NASDAQ:BBBY) are the two most active stocks in the market based on today’s trading volumes. We will compare the two companies based on the strength of various metrics, including growth, profitability, risk, return, and valuation to determine if one is a better investment than the other.

Growth

Companies that can increase earnings at a high compound rate over time are attractive to investors. Analysts expect FE to grow earnings at a -4.74% annual rate over the next 5 years.



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. , compared to an EBITDA margin of 9.51% for Bed Bath & Beyond Inc. (BBBY). FE’s ROI is -18.10% while BBBY has a ROI of 17.90%. The interpretation is that BBBY’s business generates a higher return on investment than FE’s.

Cash Flow




Cash is king when it comes to investing. FE’s free cash flow (“FCF”) per share for the trailing twelve months was +1.13. Comparatively, BBBY’s free cash flow per share was +0.14. On a percent-of-sales basis, FE’s free cash flow was 3.69% while BBBY converted 0.16% of its revenues into cash flow. This means that, for a given level of sales, FE is able to generate more free cash flow for investors.

Liquidity and Financial Risk

Liquidity and leverage ratios provide insight into the financial health of a company, and allow investors to determine the likelihood that the company will be able to continue operating as a going concern. FE has a current ratio of 0.70 compared to 1.70 for BBBY. This means that BBBY can more easily cover its most immediate liabilities over the next twelve months. FE’s debt-to-equity ratio is 3.54 versus a D/E of 0.54 for BBBY. FE is therefore the more solvent of the two companies, and has lower financial risk.

Valuation

FE trades at a forward P/E of 13.19, a P/B of 2.28, and a P/S of 1.04, compared to a forward P/E of 7.77, a P/B of 1.09, and a P/S of 0.26 for BBBY. FE 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

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. FE is currently priced at a -9.01% to its one-year price target of 36.18. Comparatively, BBBY is -4.59% relative to its price target of 22.67. This suggests that FE 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 2.30 for FE and 3.40 for BBBY, which implies that analysts are more bullish on the outlook for BBBY.

Risk and Volatility

To gauge the market risk of a particular stock, investors use beta. Stocks with a beta above 1 are more volatile than the market as a whole. Conversely, a beta below 1 implies below average systematic risk. FE has a beta of 0.34 and BBBY’s beta is 1.03. FE’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. FE has a short ratio of 0.00 compared to a short interest of 3.44 for BBBY. This implies that the market is currently less bearish on the outlook for FE.

Summary

Bed Bath & Beyond Inc. (NASDAQ:BBBY) beats FirstEnergy Corp. (NYSE:FE) on a total of 7 of the 14 factors compared between the two stocks. BBBY is more profitable, generates a higher return on investment, higher liquidity and has lower financial risk. In terms of valuation, BBBY is the cheaper of the two stocks on an earnings, book value and sales basis, Finally, HFC has better sentiment signals based on short interest.

 

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