Mack-Cali Realty Corporation (NYSE:CLI) shares are down more than -7.79% this year and recently decreased -1.39% or -$0.28 to settle at $19.88. Werner Enterprises, Inc. (NASDAQ:WERN), on the other hand, is up 1.16% year to date as of 06/13/2018. It currently trades at $39.10 and has returned 5.68% during the past week.
Mack-Cali Realty Corporation (NYSE:CLI) and Werner Enterprises, Inc. (NASDAQ:WERN) are the two most active stocks in the REIT – Office 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
Companies that can increase earnings at a high compound rate over time are attractive to investors. Analysts expect CLI to grow earnings at a -4.73% annual rate over the next 5 years. Comparatively, WERN is expected to grow at a 22.54% annual rate. All else equal, WERN’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 17.15% for Werner Enterprises, Inc. (WERN). CLI’s ROI is 2.40% while WERN has a ROI of 7.20%. The interpretation is that WERN’s business generates a higher return on investment than CLI’s.Cash Flow
Earnings don’t always accurately reflect the amount of cash that a company brings in. CLI’s free cash flow (“FCF”) per share for the trailing twelve months was -0.17. Comparatively, WERN’s free cash flow per share was +0.01. On a percent-of-sales basis, CLI’s free cash flow was -0% while WERN converted 0.03% of its revenues into cash flow. This means that, for a given level of sales, WERN is able to generate more free cash flow for investors.Liquidity and Financial Risk
CLI’s debt-to-equity ratio is 1.73 versus a D/E of 0.06 for WERN. CLI is therefore the more solvent of the two companies, and has lower financial risk.
CLI trades at a forward P/E of 31.66, a P/B of 1.19, and a P/S of 2.88, compared to a forward P/E of 16.88, a P/B of 2.33, and a P/S of 1.26 for WERN. CLI is the cheaper of the two stocks on book value basis but is expensive in terms of P/E and P/S 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
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. CLI is currently priced at a 0.35% to its one-year price target of 19.81. Comparatively, WERN is -7.04% relative to its price target of 42.06. This suggests that WERN 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. CLI has a beta of 1.17 and WERN’s beta is 0.97. WERN’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. CLI has a short ratio of 1.83 compared to a short interest of 10.11 for WERN. This implies that the market is currently less bearish on the outlook for CLI.Summary
Werner Enterprises, Inc. (NASDAQ:WERN) beats Mack-Cali Realty Corporation (NYSE:CLI) on a total of 11 of the 14 factors compared between the two stocks. WERN is more profitable, generates a higher return on investment, has higher cash flow per share, has a higher cash conversion rate, higher liquidity and has lower financial risk. In terms of valuation, WERN is the cheaper of the two stocks on an earnings and sales basis, WERN is more undervalued relative to its price target. Finally, CMI has better sentiment signals based on short interest.