Pfizer Inc. (NYSE:PFE) shares are down more than -2.84% this year and recently increased 0.72% or $0.25 to settle at $35.19. Juniper Networks, Inc. (NYSE:JNPR), on the other hand, is down -8.18% year to date as of 02/14/2018. It currently trades at $26.17 and has returned 3.07% during the past week.
Pfizer Inc. (NYSE:PFE) and Juniper Networks, Inc. (NYSE:JNPR) are the two most active stocks in the market 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 PFE to grow earnings at a 6.78% annual rate over the next 5 years. Comparatively, JNPR is expected to grow at a 8.95% annual rate. All else equal, JNPR’s higher growth rate would imply a greater potential for capital appreciation.
Profitability and Returns
Just, if not more, important than the growth rate is the quality of that growth. Growth can actual be harmful to investors if it comes at the cost of weak profitability and low returns. 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 21.42% for Juniper Networks, Inc. (JNPR). PFE’s ROI is 7.80% while JNPR has a ROI of 9.20%. The interpretation is that JNPR’s business generates a higher return on investment than PFE’s.
The amount of free cash flow available to investors is ultimately what determines the value of a stock. On a percent-of-sales basis, PFE’s free cash flow was 0% while JNPR converted 2.46% of its revenues into cash flow. This means that, for a given level of sales, JNPR is able to generate more free cash flow for investors.
Liquidity and Financial Risk
Analysts look at liquidity and leverage ratios to assess how easily a company can cover its liabilities. PFE has a current ratio of 1.40 compared to 2.70 for JNPR. This means that JNPR can more easily cover its most immediate liabilities over the next twelve months. PFE’s debt-to-equity ratio is 0.72 versus a D/E of 0.00 for JNPR. PFE is therefore the more solvent of the two companies, and has lower financial risk.
PFE trades at a forward P/E of 11.54, a P/B of 3.45, and a P/S of 3.93, compared to a forward P/E of 12.17, a P/B of 1.90, and a P/S of 1.92 for JNPR. PFE 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
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”. PFE is currently priced at a -12.57% to its one-year price target of 40.25. Comparatively, JNPR is -0.98% relative to its price target of 26.43. This suggests that PFE 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 2.60 for PFE and 2.90 for JNPR, which implies that analysts are more bullish on the outlook for JNPR.
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. PFE has a beta of 0.94 and JNPR’s beta is 0.85. JNPR’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. PFE has a short ratio of 2.76 compared to a short interest of 2.47 for JNPR. This implies that the market is currently less bearish on the outlook for JNPR.
Juniper Networks, Inc. (NYSE:JNPR) beats Pfizer Inc. (NYSE:PFE) on a total of 10 of the 14 factors compared between the two stocks. JNPR is more profitable, 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, JNPR is the cheaper of the two stocks on book value and sales basis, Finally, JNPR has better sentiment signals based on short interest.