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Critical Comparison: United Parcel Service, Inc. (UPS) vs. BB&T Corporation (BBT)

United Parcel Service, Inc. (NYSE:UPS) shares are down more than -2.15% this year and recently increased 0.23% or $0.27 to settle at $116.59. BB&T Corporation (NYSE:BBT), on the other hand, is up 11.58% year to date as of 05/17/2018. It currently trades at $55.43 and has returned 0.71% during the past week.

United Parcel Service, Inc. (NYSE:UPS) and BB&T Corporation (NYSE:BBT) are the two most active stocks in the Air Delivery & Freight Services industry based on today’s trading volumes. Investor interest in the two stocks is clearly very high, but which is the better investment? To answer this question, we will compare the two companies across growth, profitability, risk, and valuation metrics, and also examine their analyst ratings and insider activity trends.

Growth

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 UPS to grow earnings at a 11.02% annual rate over the next 5 years. Comparatively, BBT is expected to grow at a 7.05% annual rate. All else equal, UPS’s higher growth rate would imply a greater potential for capital appreciation.

Profitability and Returns

Growth in and of itself is not necessarily valuable, and it can even be harmful to shareholders if companies overinvest in unprofitable projects in pursuit of that growth. We will use EBITDA margin and Return on Investment (ROI), which adjust for differences in capital structure, as measure of profitability and return. , compared to an EBITDA margin of 48.93% for BB&T Corporation (BBT). UPS’s ROI is 19.90% while BBT has a ROI of 9.60%. The interpretation is that UPS’s business generates a higher return on investment than BBT’s.

Cash Flow



If there’s one thing investors care more about than earnings, it’s cash flow. UPS’s free cash flow (“FCF”) per share for the trailing twelve months was +2.04. Comparatively, BBT’s free cash flow per share was +0.07. On a percent-of-sales basis, UPS’s free cash flow was 2.67% while BBT converted 0.45% of its revenues into cash flow. This means that, for a given level of sales, UPS is able to generate more free cash flow for investors.

Liquidity and Financial Risk

UPS’s debt-to-equity ratio is 17.18 versus a D/E of 0.79 for BBT. UPS is therefore the more solvent of the two companies, and has lower financial risk.

Valuation

UPS trades at a forward P/E of 14.80, a P/B of 75.22, and a P/S of 1.43, compared to a forward P/E of 12.77, a P/B of 1.63, and a P/S of 5.73 for BBT. UPS is the cheaper of the two stocks on sales basis but is expensive in terms of P/E and P/B ratio. 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. UPS is currently priced at a -6.1% to its one-year price target of 124.17. Comparatively, BBT is -4.53% relative to its price target of 58.06. This suggests that UPS is the better investment over the next year.

Risk and Volatility

To gauge the market risk of a particular stock, investors use beta. Stocks with a beta above 1 are more volatile than the market as a whole. Conversely, a beta below 1 implies below average systematic risk. UPS has a beta of 1.01 and BBT’s beta is 1.03. UPS’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. UPS has a short ratio of 3.70 compared to a short interest of 2.95 for BBT. This implies that the market is currently less bearish on the outlook for BBT.

Summary




United Parcel Service, Inc. (NYSE:UPS) beats BB&T Corporation (NYSE:BBT) on a total of 8 of the 14 factors compared between the two stocks. UPS is growing fastly, generates a higher return on investment, has higher cash flow per share, has a higher cash conversion rate and higher liquidity. UPS is more undervalued relative to its price target. Finally, VICI has better sentiment signals based on short interest.

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