Union Pacific Corporation (NYSE:UNP) shares are up more than 7.59% this year and recently decreased -1.25% or -$1.82 to settle at $144.28. Foot Locker, Inc. (NYSE:FL), on the other hand, is up 22.06% year to date as of 06/13/2018. It currently trades at $57.22 and has returned 0.39% during the past week.
Union Pacific Corporation (NYSE:UNP) and Foot Locker, Inc. (NYSE:FL) are the two most active stocks in the Railroads industry based on today’s trading volumes. The market is clearly enthusiastic about both these stocks, but which is the better investment? To answer this, we will compare the two companies based on the strength of their growth, profitability, risk, returns, valuation, analyst recommendations, and insider 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 UNP to grow earnings at a 17.65% annual rate over the next 5 years. Comparatively, FL is expected to grow at a 7.64% annual rate. All else equal, UNP’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 9.11% for Foot Locker, Inc. (FL). UNP’s ROI is 12.80% while FL has a ROI of 14.20%. The interpretation is that FL’s business generates a higher return on investment than UNP’s.Cash Flow
The amount of free cash flow available to investors is ultimately what determines the value of a stock. UNP’s free cash flow (“FCF”) per share for the trailing twelve months was +0.54. Comparatively, FL’s free cash flow per share was +2.60. On a percent-of-sales basis, UNP’s free cash flow was 1.96% while FL converted 3.91% of its revenues into cash flow. This means that, for a given level of sales, FL is able to generate more free cash flow for investors.Liquidity and Financial Risk
Balance sheet risk is one of the biggest factors to consider before investing. UNP has a current ratio of 0.80 compared to 3.90 for FL. This means that FL can more easily cover its most immediate liabilities over the next twelve months. UNP’s debt-to-equity ratio is 0.72 versus a D/E of 0.00 for FL. UNP is therefore the more solvent of the two companies, and has lower financial risk.Valuation
UNP trades at a forward P/E of 16.72, a P/B of 4.59, and a P/S of 5.19, compared to a forward P/E of 11.67, a P/B of 2.67, and a P/S of 0.87 for FL. UNP 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
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. UNP is currently priced at a -5.77% to its one-year price target of 153.12. Comparatively, FL is -2.52% relative to its price target of 58.70. This suggests that UNP is the better investment over the next year.
Risk and Volatility
Beta is an important measure that gives investors a sense of the market risk associated with a particular stock. A beta above 1 signals above average market risk, while a beta below 1 implies below average volatility. UNP has a beta of 0.79 and FL’s beta is 0.94. UNP’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. UNP has a short ratio of 3.03 compared to a short interest of 0.00 for FL. This implies that the market is currently less bearish on the outlook for FL.Summary
Foot Locker, Inc. (NYSE:FL) beats Union Pacific Corporation (NYSE:UNP) on a total of 10 of the 14 factors compared between the two stocks. FL 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, FL is the cheaper of the two stocks on an earnings, book value and sales basis, Finally, FL has better sentiment signals based on short interest.