The Western Union Company (NYSE:WU) shares are up more than 3.31% this year and recently decreased -2.00% or -$0.4 to settle at $19.64. Walgreens Boots Alliance, Inc. (NASDAQ:WBA), on the other hand, is down -8.26% year to date as of 03/19/2018. It currently trades at $66.62 and has returned -5.03% during the past week.
The Western Union Company (NYSE:WU) and Walgreens Boots Alliance, Inc. (NASDAQ:WBA) 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.
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 WU to grow earnings at a 3.93% annual rate over the next 5 years. Comparatively, WBA is expected to grow at a 11.56% annual rate. All else equal, WBA’s higher growth rate would imply a greater potential for capital appreciation.
Profitability and Returns
A high growth rate isn’t necessarily valuable to investors. In fact, companies that overinvest in low return projects just to achieve a high growth rate can actually destroy shareholder value. Profitability and returns are a measure of the quality of a company’s business and its growth opportunities. We’ll use EBITDA margin and Return on Investment (ROI) to measure this., compared to an EBITDA margin of 5.76% for Walgreens Boots Alliance, Inc. (WBA). WU’s ROI is 15.60% while WBA has a ROI of 11.90%. The interpretation is that WU’s business generates a higher return on investment than WBA’s.
Cash is king when it comes to investing. WU’s free cash flow (“FCF”) per share for the trailing twelve months was +0.46. Comparatively, WBA’s free cash flow per share was +0.17. On a percent-of-sales basis, WU’s free cash flow was 3.82% while WBA converted 0.14% of its revenues into cash flow. This means that, for a given level of sales, WU is able to generate more free cash flow for investors.
WU trades at a forward P/E of 10.09, and a P/S of 1.63, compared to a forward P/E of 10.41, a P/B of 2.59, and a P/S of 0.55 for WBA. 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
Investors often compare a stock’s current price to an analyst price target to get a sense of the potential upside within the next year. WU is currently priced at a -5.07% to its one-year price target of 20.69. Comparatively, WBA is -22.14% relative to its price target of 85.56. This suggests that WBA 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 3.10 for WU and 2.30 for WBA, which implies that analysts are more bullish on the outlook for WU.
Risk and Volatility
Analyst use beta to measure a stock’s volatility relative to the overall market. Stocks with a beta above 1 tend to have bigger swings in price than the market as a whole, the opposite being the case for stocks with a beta below 1. WU has a beta of 1.04 and WBA’s beta is 1.14. WU’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. WU has a short ratio of 7.44 compared to a short interest of 3.88 for WBA. This implies that the market is currently less bearish on the outlook for WBA.
The Western Union Company (NYSE:WU) beats Walgreens Boots Alliance, Inc. (NASDAQ:WBA) on a total of 8 of the 14 factors compared between the two stocks. WU is more profitable, generates a higher return on investment, has higher cash flow per share, has a higher cash conversion rate and has lower financial risk. In terms of valuation, WU is the cheaper of the two stocks on an earnings and book value, Finally, ADBE has better sentiment signals based on short interest.