Regions Financial Corporation (NYSE:RF) shares are up more than 7.52% this year and recently increased 1.78% or $0.27 to settle at $15.44. BB&T Corporation (NYSE:BBT), on the other hand, is down -1.13% year to date as of 11/13/2017. It currently trades at $46.49 and has returned -6.04% during the past week.
Regions Financial Corporation (NYSE:RF) and BB&T Corporation (NYSE:BBT) are the two most active stocks in the Regional – Southeast Banks industry based on today’s trading volumes. Investor interest in the two stocks is clearly very high, but which is the better investment? To answer this question, we will compare the two companies across growth, profitability, risk, and valuation metrics, and also examine their analyst ratings and insider activity trends.
One of the key things investors look for in a company is the ability to grow earnings at a high compound rate over time. Analysts expect RF to grow earnings at a 11.76% annual rate over the next 5 years. Comparatively, BBT is expected to grow at a 6.22% annual rate. All else equal, RF’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. , compared to an EBITDA margin of 43.84% for BB&T Corporation (BBT). RF’s ROI is 14.10% while BBT has a ROI of 10.20%. The interpretation is that RF’s business generates a higher return on investment than BBT’s.
Earnings don’t always accurately reflect the amount of cash that a company brings in. On a percent-of-sales basis, RF’s free cash flow was 0% while BBT converted 6.36% of its revenues into cash flow. This means that, for a given level of sales, BBT is able to generate more free cash flow for investors.
RF’s debt-to-equity ratio is 0.28 versus a D/E of 0.69 for BBT. BBT is therefore the more solvent of the two companies, and has lower financial risk.
RF trades at a forward P/E of 13.65, a P/B of 1.15, and a P/S of 4.60, compared to a forward P/E of 13.58, a P/B of 1.38, and a P/S of 5.15 for BBT. 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. RF is currently priced at a -3.5% to its one-year price target of 16.00. Comparatively, BBT is -4.89% relative to its price target of 48.88. This suggests that BBT 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 2.90 for RF and 2.60 for BBT, which implies that analysts are more bullish on the outlook for RF.
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. RF has a beta of 1.30 and BBT’s beta is 1.00. BBT’s shares are therefore the less volatile of the two stocks.
Insider Activity and Investor Sentiment
The analysis of insider buying and selling trends can be extended to the aggregate level. Short interest, which represents the percentage of a stock’s tradable shares currently being shorted, captures what the market as a whole feels about a stock. RF has a short ratio of 1.72 compared to a short interest of 4.41 for BBT. This implies that the market is currently less bearish on the outlook for RF.
Regions Financial Corporation (NYSE:RF) beats BB&T Corporation (NYSE:BBT) on a total of 8 of the 14 factors compared between the two stocks. RF is growing fastly, is more profitable, generates a higher return on investment, higher liquidity and has lower financial risk. In terms of valuation, RF is the cheaper of the two stocks on book value and sales basis, Finally, RF has better sentiment signals based on short interest.