Global

Comparing Navient Corporation (NAVI) and Flowers Foods, Inc. (FLO)

Navient Corporation (NASDAQ:NAVI) shares are up more than 3.08% this year and recently decreased -3.38% or -$0.48 to settle at $13.73. Flowers Foods, Inc. (NYSE:FLO), on the other hand, is up 5.49% year to date as of 06/13/2018. It currently trades at $20.37 and has returned 1.04% during the past week.

Navient Corporation (NASDAQ:NAVI) and Flowers Foods, Inc. (NYSE:FLO) are the two most active stocks in the Credit Services 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 consistently grow earnings at a high compound rate usually have the greatest potential to create value for shareholders in the long-run. Analysts expect NAVI to grow earnings at a -3.64% annual rate over the next 5 years. Comparatively, FLO is expected to grow at a 9.28% annual rate. All else equal, FLO’s higher growth rate would imply a greater potential for capital appreciation.

Profitability and Returns

Growth isn’t very attractive to investors if companies are sacrificing profitability and shareholder returns to achieve that growth. We will use EBITDA margin and Return on Investment (ROI), which control for differences in capital structure between the two companies, to measure profitability and return., compared to an EBITDA margin of 9.19% for Flowers Foods, Inc. (FLO). NAVI’s ROI is 0.10% while FLO has a ROI of 5.50%. The interpretation is that FLO’s business generates a higher return on investment than NAVI’s.

Cash Flow



Cash is king when it comes to investing. NAVI’s free cash flow (“FCF”) per share for the trailing twelve months was +0.90. Comparatively, FLO’s free cash flow per share was +0.16. On a percent-of-sales basis, NAVI’s free cash flow was 4.6% while FLO converted 0.86% of its revenues into cash flow. This means that, for a given level of sales, NAVI is able to generate more free cash flow for investors.

Liquidity and Financial Risk

NAVI’s debt-to-equity ratio is 29.68 versus a D/E of 0.65 for FLO. NAVI is therefore the more solvent of the two companies, and has lower financial risk.

Valuation

NAVI trades at a forward P/E of 7.06, a P/B of 1.00, and a P/S of 1.94, compared to a forward P/E of 17.37, a P/B of 3.33, and a P/S of 1.06 for FLO. 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

When investing it’s crucial to distinguish between price and value. As Warren Buffet said, “price is what you pay, value is what you get”. NAVI is currently priced at a -18.03% to its one-year price target of 16.75. Comparatively, FLO is -4.99% relative to its price target of 21.44. This suggests that NAVI 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. NAVI has a beta of 2.20 and FLO’s beta is 0.66. FLO’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. NAVI has a short ratio of 2.83 compared to a short interest of 7.90 for FLO. This implies that the market is currently less bearish on the outlook for NAVI.

Summary




Navient Corporation (NASDAQ:NAVI) beats Flowers Foods, Inc. (NYSE:FLO) on a total of 8 of the 14 factors compared between the two stocks. NAVI is more profitable, has higher cash flow per share and has a higher cash conversion rate. In terms of valuation, NAVI is the cheaper of the two stocks on an earnings and book value, NAVI is more undervalued relative to its price target. Finally, NAVI has better sentiment signals based on short interest.

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