Earnings

A Side-by-side Analysis of Exelon Corporation (EXC) and D.R. Horton, Inc. (DHI)

Exelon Corporation (NYSE:EXC) shares are down more than -5.00% this year and recently decreased -0.24% or -$0.09 to settle at $37.44. D.R. Horton, Inc. (NYSE:DHI), on the other hand, is down -12.36% year to date as of 03/13/2018. It currently trades at $44.76 and has returned 3.04% during the past week.

Exelon Corporation (NYSE:EXC) and D.R. Horton, Inc. (NYSE:DHI) 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.

Growth

The ability to grow earnings at a compound rate over time is a crucial determinant of investment value. Analysts expect EXC to grow earnings at a 3.19% annual rate over the next 5 years. Comparatively, DHI is expected to grow at a 18.53% annual rate. All else equal, DHI’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. , compared to an EBITDA margin of 12.11% for D.R. Horton, Inc. (DHI). EXC’s ROI is 6.30% while DHI has a ROI of 9.80%. The interpretation is that DHI’s business generates a higher return on investment than EXC’s.

Cash Flow 




Cash is king when it comes to investing. EXC’s free cash flow (“FCF”) per share for the trailing twelve months was -0.56. Comparatively, DHI’s free cash flow per share was -0.43. On a percent-of-sales basis, EXC’s free cash flow was -1.61% while DHI converted -1.15% of its revenues into cash flow. This means that, for a given level of sales, DHI is able to generate more free cash flow for investors.

Liquidity and Financial Risk

EXC’s debt-to-equity ratio is 1.19 versus a D/E of 0.41 for DHI. EXC is therefore the more solvent of the two companies, and has lower financial risk.

Valuation

EXC trades at a forward P/E of 12.41, a P/B of 1.21, and a P/S of 1.08, compared to a forward P/E of 10.34, a P/B of 2.13, and a P/S of 1.15 for DHI. 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. EXC is currently priced at a -10.6% to its one-year price target of 41.88. Comparatively, DHI is -20.85% relative to its price target of 56.55. This suggests that DHI 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 2.00 for EXC and 2.20 for DHI, which implies that analysts are more bullish on the outlook for DHI.

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. EXC has a beta of 0.20 and DHI’s beta is 1.17. EXC’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. EXC has a short ratio of 3.74 compared to a short interest of 1.72 for DHI. This implies that the market is currently less bearish on the outlook for DHI.

Summary

D.R. Horton, Inc. (NYSE:DHI) beats Exelon Corporation (NYSE:EXC) on a total of 8 of the 14 factors compared between the two stocks. DHI is more profitable, generates a higher return on investment, has higher cash flow per share, has a higher cash conversion rate and has lower financial risk. DHI is more undervalued relative to its price target. Finally, DHI has better sentiment signals based on short interest.

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