Verizon Communications Inc. (NYSE:VZ) shares are down more than -6.46% this year and recently decreased -1.14% or -$0.57 to settle at $49.51. Huntington Bancshares Incorporated (NASDAQ:HBAN), on the other hand, is up 9.13% year to date as of 02/14/2018. It currently trades at $15.89 and has returned 1.60% during the past week.
Verizon Communications Inc. (NYSE:VZ) and Huntington Bancshares Incorporated (NASDAQ:HBAN) are the two most active stocks in the market based on today’s trading volumes. We will compare the two companies based on the strength of various metrics, including growth, profitability, risk, return, and valuation to determine if one is a better investment than the other.
The ability to grow earnings at a compound rate over time is a crucial determinant of investment value. Analysts expect VZ to grow earnings at a 5.90% annual rate over the next 5 years. Comparatively, HBAN is expected to grow at a 12.70% annual rate. All else equal, HBAN’s higher growth rate would imply a greater potential for capital appreciation.
Profitability and Returns
A high growth rate isn’t necessarily valuable to investors. In fact, companies that overinvest in low return projects just to achieve a high growth rate can actually destroy shareholder value. Profitability and returns are a measure of the quality of a company’s business and its growth opportunities. We’ll use EBITDA margin and Return on Investment (ROI) to measure this., compared to an EBITDA margin of 49.74% for Huntington Bancshares Incorporated (HBAN). VZ’s ROI is 15.10% while HBAN has a ROI of 11.20%. The interpretation is that VZ’s business generates a higher return on investment than HBAN’s.
If there’s one thing investors care more about than earnings, it’s cash flow. VZ’s free cash flow (“FCF”) per share for the trailing twelve months was -0.21. Comparatively, HBAN’s free cash flow per share was -. On a percent-of-sales basis, VZ’s free cash flow was -0.68% while HBAN converted 0% of its revenues into cash flow. This means that, for a given level of sales, HBAN is able to generate more free cash flow for investors.
Liquidity and Financial Risk
VZ’s debt-to-equity ratio is 4.38 versus a D/E of 0.96 for HBAN. VZ is therefore the more solvent of the two companies, and has lower financial risk.
VZ trades at a forward P/E of 10.61, a P/B of 7.54, and a P/S of 1.60, compared to a forward P/E of 12.10, a P/B of 1.79, and a P/S of 5.03 for HBAN. 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. VZ is currently priced at a -11.4% to its one-year price target of 55.88. Comparatively, HBAN is -9.04% relative to its price target of 17.47. This suggests that VZ 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 VZ and 2.30 for HBAN, which implies that analysts are more bullish on the outlook for VZ.
Risk and Volatility
Beta is a metric that investors frequently use to analyze a stock’s systematic risk. A beta above 1 implies above average market volatility. Conversely, a stock with a beta below 1 is seen as less risky than the overall market. VZ has a beta of 0.64 and HBAN’s beta is 1.27. VZ’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. VZ has a short ratio of 2.07 compared to a short interest of 2.56 for HBAN. This implies that the market is currently less bearish on the outlook for VZ.
Huntington Bancshares Incorporated (NASDAQ:HBAN) beats Verizon Communications Inc. (NYSE:VZ) on a total of 7 of the 14 factors compared between the two stocks. HBAN generates a higher return on investment, is more profitable, has higher cash flow per share, has a higher cash conversion rate and has lower financial risk. Finally, FCAU has better sentiment signals based on short interest.