Earnings

Critical Comparison: MBIA Inc. (MBI) vs. State National Companies, Inc. (SNC)

MBIA Inc. (NYSE:MBI) and State National Companies, Inc. (NASDAQ:SNC) are the two most active stocks in the Property & Casualty Insurance industry based on today’s trading volumes. To determine if one is a better investment than the other, we will compare the two companies’ growth, profitability, risk, return, and valuation characteristics, as well as their analyst ratings and sentiment signals.

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 Return on Investment (ROI), which adjust for differences in capital structure, as measure of profitability and return. MBI’s ROI is -1.30% while SNC has a ROI of 15.10%. The interpretation is that SNC’s business generates a higher return on investment than MBI’s.

Cash Flow 



The value of a stock is simply the present value of its future free cash flows. MBI’s free cash flow (“FCF”) per share for the trailing twelve months was +0.25. Comparatively, SNC’s free cash flow per share was +0.05. On a percent-of-sales basis, MBI’s free cash flow was 0.01% while SNC converted 0% of its revenues into cash flow. This means that, for a given level of sales, MBI 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. MBI’s debt-to-equity ratio is 2.97 versus a D/E of 0.14 for SNC. MBI is therefore the more solvent of the two companies, and has lower financial risk.




Valuation

MBI trades at a forward P/E of 43.17, a P/B of 0.68, and a P/S of 4.30, compared to a forward P/E of 14.48, a P/B of 2.73, and a P/S of 3.76 for SNC. MBI 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

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. MBI is currently priced at a -13.8% to its one-year price target of $12.17. Comparatively, SNC is 6.76% relative to its price target of $19.67. This suggests that MBI is the better investment over the next year.

The average investment recommendation on a scale of 1 to 5 (1 being a strong buy, 3 a hold, and 5 a sell) is 2.00 for MBI and 2.70 for SNC, which implies that analysts are more bullish on the outlook for SNC.

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. MBI has a beta of 2.40.

Insider Activity and Investor Sentiment

Comparing the number of shares sold short to the float is a method analysts often use to get a reading on investor sentiment. MBI has a short ratio of 9.36 compared to a short interest of 0.52 for SNC. This implies that the market is currently less bearish on the outlook for SNC.

Summary

State National Companies, Inc. (NASDAQ:SNC) beats MBIA Inc. (NYSE:MBI) on a total of 6 of the 11 factors compared between the two stocks. SNC has higher cash flow per share, generates a higher return on investment and has lower financial risk. In terms of valuation, SNC is the cheaper of the two stocks on an earnings and sales basis, Finally, SNC has better sentiment signals based on short interest.

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