Spirit Realty Capital, Inc. (NYSE:SRC) shares are down more than -20.63% this year and recently increased 0.70% or $0.06 to settle at $8.62. Cousins Properties Incorporated (NYSE:CUZ), on the other hand, is up 8.11% year to date as of 11/10/2017. It currently trades at $9.20 and has returned 1.55% during the past week.
Spirit Realty Capital, Inc. (NYSE:SRC) and Cousins Properties Incorporated (NYSE:CUZ) are the two most active stocks in the REIT – Diversified 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.
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 SRC to grow earnings at a 37.47% annual rate over the next 5 years.
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. , compared to an EBITDA margin of 0.85% for Cousins Properties Incorporated (CUZ). SRC’s ROI is 0.60% while CUZ has a ROI of 0.00%. The interpretation is that SRC’s business generates a higher return on investment than CUZ’s.
Earnings don’t always accurately reflect the amount of cash that a company brings in. SRC’s free cash flow (“FCF”) per share for the trailing twelve months was +0.01. Comparatively, CUZ’s free cash flow per share was -0.04. On a percent-of-sales basis, SRC’s free cash flow was 0% while CUZ converted -0.01% of its revenues into cash flow. This means that, for a given level of sales, SRC is able to generate more free cash flow for investors.
SRC’s debt-to-equity ratio is 1.19 versus a D/E of 0.40 for CUZ. SRC is therefore the more solvent of the two companies, and has lower financial risk.
SRC trades at a forward P/E of 34.07, a P/B of 1.21, and a P/S of 5.85, compared to a forward P/E of 83.64, a P/B of 1.40, and a P/S of 8.25 for CUZ. SRC 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
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”. SRC is currently priced at a -5.69% to its one-year price target of 9.14. Comparatively, CUZ is -7.07% relative to its price target of 9.90. This suggests that CUZ 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 2.40 for SRC and 2.20 for CUZ, which implies that analysts are more bullish on the outlook for SRC.
Risk and Volatility
To gauge the market risk of a particular stock, investors use beta. Stocks with a beta above 1 are more volatile than the market as a whole. Conversely, a beta below 1 implies below average systematic risk. SRC has a beta of 0.61 and CUZ’s beta is 1.05. SRC’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. SRC has a short ratio of 0.99 compared to a short interest of 8.76 for CUZ. This implies that the market is currently less bearish on the outlook for SRC.
Spirit Realty Capital, Inc. (NYSE:SRC) beats Cousins Properties Incorporated (NYSE:CUZ) on a total of 11 of the 14 factors compared between the two stocks. SRC is growing fastly, is more profitable, generates a higher return on investment, has higher cash flow per share, has a higher cash conversion rate and higher liquidity. In terms of valuation, SRC is the cheaper of the two stocks on an earnings, book value and sales basis, Finally, SRC has better sentiment signals based on short interest.