Earnings

Set Sail With Archer-Daniels-Midland Company (ADM), Baxter International Inc. (BAX)

The shares of Archer-Daniels-Midland Company have increased by more than 10.83% this year alone. The shares recently went up by 1.00% or $0.44 and now trades at $44.42. The shares of Baxter International Inc. (NYSE:BAX), has jumped by 10.15% year to date as of 05/14/2018. The shares currently trade at $71.20 and have been able to report a change of 1.24% over the past one week.

The stock of Archer-Daniels-Midland Company and Baxter International Inc. were two of the most active stocks on Monday. Investors seem to be very interested in what happens to the stocks of these two companies but do investors favor one over the other? We will analyze the growth, profitability, risk, valuation, and insider trends of both companies and see which one investors prefer.

Next 5Y EPS Growth: -8.80% versus 13.53%

When a company is able to grow consistently in terms of earnings at a high compound rate have the highest likelihood of creating value for its shareholders over time. Analysts have predicted that ADM will grow it’s earning at a -8.80% annual rate in the next 5 years. This is in contrast to BAX which will have a positive growth at a 13.53% annual rate. This means that the higher growth rate of BAX implies a greater potential for capital appreciation over the years.

Profitability and Returns

Growth alone cannot be used to see if the company will be valuable. Shareholders will be the losers if a company invest in ventures that aren’t profitable enough to support upbeat growth. In order for us to accurately measure profitability and return, we will be using the EBITDA margin and Return on Investment (ROI), which balances the difference in capital structure. ADM has an EBITDA margin of 4.71%, this implies that the underlying business of BAX is more profitable. The ROI of ADM is 3.10% while that of BAX is 10.90%. These figures suggest that BAX ventures generate a higher ROI than that of ADM.

Cash Flow



The value of a stock is ultimately determined by the amount of cash flow that the investors have available. Over the last 12 months, ADM’s free cash flow per share is a negative -6.44, while that of BAX is positive 1.88.

Liquidity and Financial Risk

The ability of a company to meet up with its short-term obligations and be able to clear its longer-term debts is measured using Liquidity and leverage ratios. The current ratio for ADM is 1.60 and that of BAX is 2.60. This implies that it is easier for ADM to cover its immediate obligations over the next 12 months than BAX. The debt ratio of ADM is 0.48 compared to 0.39 for BAX. ADM can be able to settle its long-term debts and thus is a lower financial risk than BAX.

Valuation

ADM currently trades at a forward P/E of 13.80, a P/B of 1.34, and a P/S of 0.41 while BAX trades at a forward P/E of 22.18, a P/B of 4.22, and a P/S of 3.57. This means that looking at the earnings, book values and sales basis, ADM is the cheaper one. It is very obvious that earnings are the most important factors to investors, thus analysts are most likely to place their bet on the P/E.

Analyst Price Targets and Opinions




The mistake some people make is that they think a cheap stock has more value to it. In order to know the value of a stock, there is need to compare its current price to its likely trading price in the future. The price of ADM is currently at a -7.3% to its one-year price target of 47.92. Looking at its rival pricing, BAX is at a -7.78% relative to its price target of 77.21.

When looking at the investment recommendation on say a scale of 1 to 5 (1 being a strong buy, 3 a hold, and 5 a sell), ADM is given a 2.30 while 2.30 placed for BAX. This means that analysts are equally bullish on their outlook for the two stocks stocks.

Insider Activity and Investor Sentiment

Short interest or otherwise called the percentage of a stock’s tradable shares currently being shorted is another data that investors use to get a handle on sentiment. The short ratio for ADM is 2.14 while that of BAX is just 1.89. This means that analysts are more bullish on the forecast for BAX stock.

Conclusion

The stock of Archer-Daniels-Midland Company defeats that of Baxter International Inc. when the two are compared, with ADM taking 3 out of the total factors that were been considered. ADM happens to be more profitable, generates a higher ROI, has higher cash flow per share, higher liquidity and has a lower financial risk. When looking at the stock valuation, ADM is the cheaper one on an earnings, book value and sales basis. Finally, the sentiment signal for ADM is better on when it is viewed on short interest.

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