Fulton Financial Corporation (NASDAQ:FULT) shares are up more than 4.19% this year and recently increased 0.54% or $0.1 to settle at $18.65. M&T Bank Corporation (NYSE:MTB), on the other hand, is up 10.39% year to date as of 01/22/2018. It currently trades at $188.76 and has returned 5.74% during the past week.
Fulton Financial Corporation (NASDAQ:FULT) and M&T Bank Corporation (NYSE:MTB) are the two most active stocks in the Regional – Northeast Banks 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.
Companies that can increase earnings at a high compound rate over time are attractive to investors. Analysts expect FULT to grow earnings at a -2.30% annual rate over the next 5 years. Comparatively, MTB is expected to grow at a 9.44% annual rate. All else equal, MTB’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 52.57% for M&T Bank Corporation (MTB).
The amount of free cash flow available to investors is ultimately what determines the value of a stock. FULT’s free cash flow (“FCF”) per share for the trailing twelve months was +0.43. Comparatively, MTB’s free cash flow per share was -. On a percent-of-sales basis, FULT’s free cash flow was 0.01% while MTB converted 0% of its revenues into cash flow. This means that, for a given level of sales, FULT is able to generate more free cash flow for investors.
FULT’s debt-to-equity ratio is 0.17 versus a D/E of 0.54 for MTB. MTB is therefore the more solvent of the two companies, and has lower financial risk.
FULT trades at a forward P/E of 15.15, a P/B of 1.47, and a P/S of 5.04, compared to a forward P/E of 14.86, a P/B of 1.89, and a P/S of 5.13 for MTB. 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. FULT is currently priced at a -2.92% to its one-year price target of 19.21. Comparatively, MTB is 3.33% relative to its price target of 182.67. This suggests that FULT 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 3.10 for FULT and 3.00 for MTB, which implies that analysts are more bullish on the outlook for FULT.
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. FULT has a beta of 1.09 and MTB’s beta is 0.86. MTB’s shares are therefore the less volatile of the two stocks.
Insider Activity and Investor Sentiment
Short interest is another tool that analysts use to gauge investor sentiment. It represents the percentage of a stock’s tradable shares that are being shorted. FULT has a short ratio of 5.85 compared to a short interest of 2.52 for MTB. This implies that the market is currently less bearish on the outlook for MTB.
Fulton Financial Corporation (NASDAQ:FULT) beats M&T Bank Corporation (NYSE:MTB) on a total of 8 of the 14 factors compared between the two stocks. FULT generates a higher return on investment, has higher cash flow per share, has a higher cash conversion rate, higher liquidity and has lower financial risk. In terms of valuation, FULT is the cheaper of the two stocks on book value and sales basis, FULT is more undervalued relative to its price target. Finally, ZION has better sentiment signals based on short interest.