Kohl’s Corporation (NYSE:KSS) shares are up more than 39.63% this year and recently decreased -3.32% or -$2.6 to settle at $75.72. Service Corporation International (NYSE:SCI), on the other hand, is down -5.41% year to date as of 06/13/2018. It currently trades at $35.30 and has returned -4.18% during the past week.
Kohl’s Corporation (NYSE:KSS) and Service Corporation International (NYSE:SCI) are the two most active stocks in the Department Stores 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
The ability to consistently grow earnings at a high compound rate is a defining characteristic of the best companies for long-term investment. Analysts expect KSS to grow earnings at a 9.80% annual rate over the next 5 years. Comparatively, SCI is expected to grow at a 12.11% annual rate. All else equal, SCI’s higher growth rate would imply a greater potential for capital appreciation.Profitability and Returns
Growth doesn’t mean much if it comes at the cost of weak profitability. To adjust for differences in capital structure we’ll use EBITDA margin and Return on Investment (ROI) as measures of profitability and return. Kohl’s Corporation (KSS) has an EBITDA margin of 12.31%. This suggests that KSS underlying business is more profitable KSS’s ROI is 10.30% while SCI has a ROI of 14.70%. The interpretation is that SCI’s business generates a higher return on investment than KSS’s.Cash Flow
Earnings don’t always accurately reflect the amount of cash that a company brings in. KSS’s free cash flow (“FCF”) per share for the trailing twelve months was +0.92. Comparatively, SCI’s free cash flow per share was +0.70. On a percent-of-sales basis, KSS’s free cash flow was 0.81% while SCI converted 4.15% of its revenues into cash flow. This means that, for a given level of sales, SCI is able to generate more free cash flow for investors.Liquidity and Financial Risk
Liquidity and leverage ratios measure a company’s ability to meet short-term obligations and longer-term debts. KSS has a current ratio of 2.00 compared to 0.60 for SCI. This means that KSS can more easily cover its most immediate liabilities over the next twelve months. KSS’s debt-to-equity ratio is 0.83 versus a D/E of 2.25 for SCI. SCI is therefore the more solvent of the two companies, and has lower financial risk.Valuation
KSS trades at a forward P/E of 13.39, a P/B of 2.29, and a P/S of 0.64, compared to a forward P/E of 17.79, a P/B of 4.32, and a P/S of 2.09 for SCI. KSS is the cheaper 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
Just because a stock is cheaper doesn’t mean there’s more value to be had. In order to assess value we need to compare the current price to where it’s likely to trade in the future. KSS is currently priced at a 6.83% to its one-year price target of 70.88. Comparatively, SCI is -20.67% relative to its price target of 44.50. This suggests that SCI 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. KSS has a beta of 1.33 and SCI’s beta is 0.94. SCI’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. KSS has a short ratio of 6.69 compared to a short interest of 11.94 for SCI. This implies that the market is currently less bearish on the outlook for KSS.Summary
Kohl’s Corporation (NYSE:KSS) beats Service Corporation International (NYSE:SCI) on a total of 8 of the 14 factors compared between the two stocks. KSS is more profitable, has higher cash flow per share, higher liquidity and has lower financial risk. In terms of valuation, KSS is the cheaper of the two stocks on an earnings, book value and sales basis, Finally, KSS has better sentiment signals based on short interest.