Morgan Stanley (NYSE:MS) shares are up more than 1.77% this year and recently increased 0.79% or $0.42 to settle at $53.40. Agilent Technologies, Inc. (NYSE:A), on the other hand, is up 1.79% year to date as of 04/16/2018. It currently trades at $68.17 and has returned 4.57% during the past week.
Morgan Stanley (NYSE:MS) and Agilent Technologies, Inc. (NYSE:A) are the two most active stocks in the Investment Brokerage – National industry 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.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 MS to grow earnings at a 20.82% annual rate over the next 5 years. Comparatively, A is expected to grow at a 10.69% annual rate. All else equal, MS’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 24.48% for Agilent Technologies, Inc. (A). MS’s ROI is 1.50% while A has a ROI of 10.60%. The interpretation is that A’s business generates a higher return on investment than MS’s.Cash Flow
Earnings don’t always accurately reflect the amount of cash that a company brings in. MS’s free cash flow (“FCF”) per share for the trailing twelve months was -3.07. Comparatively, A’s free cash flow per share was +0.33. On a percent-of-sales basis, MS’s free cash flow was -14.49% while A converted 2.38% of its revenues into cash flow. This means that, for a given level of sales, A is able to generate more free cash flow for investors.Liquidity and Financial Risk
MS’s debt-to-equity ratio is 5.93 versus a D/E of 0.47 for A. MS is therefore the more solvent of the two companies, and has lower financial risk.
MS trades at a forward P/E of 10.65, a P/B of 1.36, and a P/S of 2.21, compared to a forward P/E of 22.73, a P/B of 4.87, and a P/S of 4.76 for A. MS 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. MS is currently priced at a -13.37% to its one-year price target of 61.64. Comparatively, A is -14.71% relative to its price target of 79.93. This suggests that A is the better investment over the next year.
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. MS has a beta of 1.53 and A’s beta is 1.33. A’s shares are therefore the less volatile of the two stocks.Insider Activity and Investor Sentiment
Short interest, or the percentage of a stock’s tradable shares currently being shorted, is another metric investors use to get a pulse on sentiment. MS has a short ratio of 1.06 compared to a short interest of 1.45 for A. This implies that the market is currently less bearish on the outlook for MS.Summary
Agilent Technologies, Inc. (NYSE:A) beats Morgan Stanley (NYSE:MS) on a total of 8 of the 14 factors compared between the two stocks. A is growing fastly, has higher cash flow per share, has a higher cash conversion rate, higher liquidity and has lower financial risk. In terms of valuation, MS is the cheaper of the two stocks on an earnings, book value and sales basis, A is more undervalued relative to its price target. Finally, SU has better sentiment signals based on short interest.