American Tower Corporation (REIT) (NYSE:AMT) shares are up more than 41.98% this year and recently decreased -0.33% or -$0.5 to settle at $150.04. Vornado Realty Trust (NYSE:VNO), on the other hand, is down -9.93% year to date as of 11/10/2017. It currently trades at $75.97 and has returned 2.32% during the past week.
American Tower Corporation (REIT) (NYSE:AMT) and Vornado Realty Trust (NYSE:VNO) are the two most active stocks in the REIT – Diversified industry based on today’s trading volumes. The market is clearly enthusiastic about both these stocks, but which is the better investment? To answer this, we will compare the two companies based on the strength of their growth, profitability, risk, returns, valuation, analyst recommendations, and insider 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 AMT to grow earnings at a 28.42% annual rate over the next 5 years. Comparatively, VNO is expected to grow at a 23.85% annual rate. All else equal, AMT’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 79.32% for Vornado Realty Trust (VNO). AMT’s ROI is 6.70% while VNO has a ROI of 7.20%. The interpretation is that VNO’s business generates a higher return on investment than AMT’s.
The value of a stock is simply the present value of its future free cash flows. AMT’s free cash flow (“FCF”) per share for the trailing twelve months was +0.43. Comparatively, VNO’s free cash flow per share was +2.36. On a percent-of-sales basis, AMT’s free cash flow was 3.19% while VNO converted 17.88% of its revenues into cash flow. This means that, for a given level of sales, VNO is able to generate more free cash flow for investors.
Liquidity and Financial Risk
AMT’s debt-to-equity ratio is 2.96 versus a D/E of 2.65 for VNO. AMT is therefore the more solvent of the two companies, and has lower financial risk.
AMT trades at a forward P/E of 41.46, a P/B of 9.88, and a P/S of 9.98, compared to a forward P/E of 45.63, a P/B of 4.08, and a P/S of 6.57 for VNO. AMT is the cheaper of the two stocks on an earnings basis but is expensive in terms of P/B 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. AMT is currently priced at a -4.18% to its one-year price target of 156.59. Comparatively, VNO is -10.94% relative to its price target of 85.30. This suggests that VNO 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 1.70 for AMT and 2.20 for VNO, which implies that analysts are more bullish on the outlook for VNO.
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. AMT has a beta of 0.75 and VNO’s beta is 1.02. AMT’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. AMT has a short ratio of 2.81 compared to a short interest of 3.19 for VNO. This implies that the market is currently less bearish on the outlook for AMT.
Vornado Realty Trust (NYSE:VNO) beats American Tower Corporation (REIT) (NYSE:AMT) on a total of 8 of the 14 factors compared between the two stocks. VNO is growing fastly, generates a higher return on investment, has higher cash flow per share, has a higher cash conversion rate and has lower financial risk. In terms of valuation, VNO is the cheaper of the two stocks on book value and sales basis, VNO is more undervalued relative to its price target. Finally, SBRA has better sentiment signals based on short interest.