Huntington Bancshares Incorporated (NASDAQ:HBAN) shares are up more than 0.76% this year and recently increased 0.07% or $0.01 to settle at $14.67. BHP Billiton Limited (NYSE:BHP), on the other hand, is up 0.63% year to date as of 04/16/2018. It currently trades at $46.28 and has returned 6.07% during the past week.
Huntington Bancshares Incorporated (NASDAQ:HBAN) and BHP Billiton Limited (NYSE:BHP) are the two most active stocks in the Regional – Midwest Banks industry 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
The ability to consistently grow earnings at a high compound rate is a defining characteristic of the best companies for long-term investment. Analysts expect HBAN to grow earnings at a 13.75% annual rate over the next 5 years. Comparatively, BHP is expected to grow at a 5.30% annual rate. All else equal, HBAN’s higher growth rate would imply a greater potential for capital appreciation.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. Huntington Bancshares Incorporated (HBAN) has an EBITDA margin of 54.08%. This suggests that HBAN underlying business is more profitable HBAN’s ROI is 13.00% while BHP has a ROI of 8.70%. The interpretation is that HBAN’s business generates a higher return on investment than BHP’s.Cash Flow
Cash is king when it comes to investing. HBAN’s free cash flow (“FCF”) per share for the trailing twelve months was +0.45. Comparatively, BHP’s free cash flow per share was -. On a percent-of-sales basis, HBAN’s free cash flow was 10.47% while BHP converted 0% of its revenues into cash flow. This means that, for a given level of sales, HBAN is able to generate more free cash flow for investors.Liquidity and Financial Risk
HBAN’s debt-to-equity ratio is 0.94 versus a D/E of 0.49 for BHP. HBAN is therefore the more solvent of the two companies, and has lower financial risk.
HBAN trades at a forward P/E of 11.06, a P/B of 1.62, and a P/S of 4.68, compared to a forward P/E of 20.75, a P/B of 2.16, and a P/S of 2.98 for BHP. 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”. HBAN is currently priced at a -16.31% to its one-year price target of 17.53. Comparatively, BHP is 3.86% relative to its price target of 44.56. This suggests that HBAN is the better investment over the next year.
Risk and Volatility
Beta is a metric that investors frequently use to analyze a stock’s systematic risk. A beta above 1 implies above average market volatility. Conversely, a stock with a beta below 1 is seen as less risky than the overall market. HBAN has a beta of 1.35 and BHP’s beta is 1.29. BHP’s shares are therefore the less volatile of the two stocks.Insider Activity and Investor Sentiment
Analysts often look at short interest, or the percentage of a company’s float currently being shorted by investors, to aid in their outlook for a particular stock. HBAN has a short ratio of 1.46 compared to a short interest of 5.56 for BHP. This implies that the market is currently less bearish on the outlook for HBAN.Summary
Huntington Bancshares Incorporated (NASDAQ:HBAN) beats BHP Billiton Limited (NYSE:BHP) on a total of 9 of the 14 factors compared between the two stocks. HBAN is growing fastly, is more profitable, generates a higher return on investment, has higher cash flow per share and has a higher cash conversion rate. In terms of valuation, HBAN is the cheaper of the two stocks on an earnings and book value, HBAN is more undervalued relative to its price target. Finally, HBAN has better sentiment signals based on short interest.