CSRA Inc. (NYSE:CSRA) shares are up more than 37.80% this year and recently increased 0.02% or $0.01 to settle at $41.23. Dynegy Inc. (NYSE:DYN), on the other hand, is up 13.84% year to date as of 04/03/2018. It currently trades at $13.49 and has returned 0.15% during the past week.
CSRA Inc. (NYSE:CSRA) and Dynegy Inc. (NYSE:DYN) 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.
Companies that can increase earnings at a high compound rate over time are attractive to investors. Analysts expect CSRA to grow earnings at a 10.00% 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. EBITDA margin of 14.21% for Dynegy Inc. (DYN). CSRA’s ROI is 10.10% while DYN has a ROI of 10.10%. The interpretation is that CSRA’s business generates a higher return on investment than DYN’s.
The amount of free cash flow available to investors is ultimately what determines the value of a stock. CSRA’s free cash flow (“FCF”) per share for the trailing twelve months was +0.58. Comparatively, DYN’s free cash flow per share was -0.08. On a percent-of-sales basis, CSRA’s free cash flow was 1.9% while DYN converted -0.24% of its revenues into cash flow. This means that, for a given level of sales, CSRA 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. CSRA has a current ratio of 1.00 compared to 1.50 for DYN. This means that DYN can more easily cover its most immediate liabilities over the next twelve months. CSRA’s debt-to-equity ratio is 4.80 versus a D/E of 4.44 for DYN. CSRA is therefore the more solvent of the two companies, and has lower financial risk.
CSRA trades at a forward P/E of 18.03, a P/B of 10.79, and a P/S of 1.33, compared to a P/B of 1.16, and a P/S of 0.41 for DYN. CSRA 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. CSRA is currently priced at a 5.21% to its one-year price target of 39.19. Comparatively, DYN is 5.64% relative to its price target of 12.77. This suggests that CSRA 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 CSRA and 2.40 for DYN, which implies that analysts are more bullish on the outlook for CSRA.
Insider Activity and Investor Sentiment
Comparing the number of shares sold short to the float is a method analysts often use to get a reading on investor sentiment. CSRA has a short ratio of 1.13 compared to a short interest of 5.77 for DYN. This implies that the market is currently less bearish on the outlook for CSRA.
Dynegy Inc. (NYSE:DYN) beats CSRA Inc. (NYSE:CSRA) on a total of 7 of the 14 factors compared between the two stocks. DYN is growing fastly, higher liquidity and has lower financial risk. In terms of valuation, DYN is the cheaper of the two stocks on an earnings, book value and sales basis, Finally, BSX has better sentiment signals based on short interest.