Earnings

Comparing CSRA Inc. (CSRA) and Fidelity National Information Services, Inc. (FIS)

CSRA Inc. (NYSE:CSRA) shares are up more than 35.63% this year and recently increased 0.47% or $0.19 to settle at $40.58. Fidelity National Information Services, Inc. (NYSE:FIS), on the other hand, is up 2.21% year to date as of 02/13/2018. It currently trades at $96.17 and has returned 0.47% during the past week.

CSRA Inc. (NYSE:CSRA) and Fidelity National Information Services, Inc. (NYSE:FIS) are the two most active stocks in the Information Technology Services industry based on today’s trading volumes. Investors are clearly interested in the two names, but is one a better choice than the other? We will compare the two companies across growth, profitability, risk, valuation, and insider trends to answer this question.

Growth

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 CSRA to grow earnings at a 10.00% annual rate over the next 5 years. Comparatively, FIS is expected to grow at a 12.88% annual rate. All else equal, FIS’s higher growth rate would imply a greater potential for capital appreciation.



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 EBITDA margin and Return on Investment (ROI), which adjust for differences in capital structure, as measure of profitability and return. EBITDA margin of 31.28% for Fidelity National Information Services, Inc. (FIS). CSRA’s ROI is 10.10% while FIS has a ROI of 4.90%. The interpretation is that CSRA’s business generates a higher return on investment than FIS’s.

Cash Flow 




If there’s one thing investors care more about than earnings, it’s cash flow. CSRA’s free cash flow (“FCF”) per share for the trailing twelve months was +0.58. Comparatively, FIS’s free cash flow per share was +1.54. On a percent-of-sales basis, CSRA’s free cash flow was 1.9% while FIS converted 5.63% of its revenues into cash flow. This means that, for a given level of sales, FIS 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. CSRA has a current ratio of 1.00 compared to 1.30 for FIS. This means that FIS can more easily cover its most immediate liabilities over the next twelve months. CSRA’s debt-to-equity ratio is 4.80 versus a D/E of 0.91 for FIS. CSRA is therefore the more solvent of the two companies, and has lower financial risk.

Valuation

CSRA trades at a forward P/E of 17.55, a P/B of 10.62, and a P/S of 1.31, compared to a forward P/E of 16.62, a P/B of 3.19, and a P/S of 3.43 for FIS. CSRA is the cheaper of the two stocks on sales basis but is expensive in terms of P/E and P/B 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

A cheap stock is not necessarily a value stock. Most of the time, a stock is cheap for good reason. A stock only has value if the current price is substantially below the price at which it should trade in the future. CSRA is currently priced at a 5.79% to its one-year price target of 38.36. Comparatively, FIS is -12.03% relative to its price target of 109.32. This suggests that FIS 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 2.20 for CSRA and 1.80 for FIS, which implies that analysts are more bullish on the outlook for CSRA.

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. CSRA has a short ratio of 1.75 compared to a short interest of 2.03 for FIS. This implies that the market is currently less bearish on the outlook for CSRA.

Summary

Fidelity National Information Services, Inc. (NYSE:FIS) beats CSRA Inc. (NYSE:CSRA) on a total of 10 of the 14 factors compared between the two stocks. FIS generates a higher return on investment, is more profitable, has higher cash flow per share, has a higher cash conversion rate, higher liquidity and has lower financial risk. In terms of valuation, FIS is the cheaper of the two stocks on an earnings and book value, FIS is more undervalued relative to its price target. Finally, XRX has better sentiment signals based on short interest.

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