Earnings

ADT Inc. (ADT) vs. Citizens Financial Group, Inc. (CFG): Comparing the Security & Protection Services Industry’s Most Active Stocks

ADT Inc. (NYSE:ADT) shares are down more than -14.93% this year and recently decreased -1.59% or -$0.17 to settle at $10.54. Citizens Financial Group, Inc. (NYSE:CFG), on the other hand, is up 8.93% year to date as of 03/13/2018. It currently trades at $45.73 and has returned 0.90% during the past week.

ADT Inc. (NYSE:ADT) and Citizens Financial Group, Inc. (NYSE:CFG) are the two most active stocks in the market based on today’s trading volumes. The market is clearly enthusiastic about both these stocks, but which is the better investment? To answer this, we will compare the two companies based on the strength of their growth, profitability, risk, returns, valuation, analyst recommendations, and insider trends.

Growth

Companies that can consistently grow earnings at a high compound rate usually have the greatest potential to create value for shareholders in the long-run. Analysts expect ADT to grow earnings at a 20.00% annual rate over the next 5 years. Comparatively, CFG is expected to grow at a 21.73% annual rate. All else equal, CFG’s higher growth rate would imply a greater potential for capital appreciation.



Profitability and Returns

Growth doesn’t mean much if it comes at the cost of weak profitability. 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 58.69% for Citizens Financial Group, Inc. (CFG). ADT’s ROI is 0.30% while CFG has a ROI of 10.30%. The interpretation is that CFG’s business generates a higher return on investment than ADT’s.

Cash Flow 




Earnings don’t always accurately reflect the amount of cash that a company brings in. ADT’s free cash flow (“FCF”) per share for the trailing twelve months was +0.84. Comparatively, CFG’s free cash flow per share was -. On a percent-of-sales basis, ADT’s free cash flow was 21.32% while CFG converted 0% of its revenues into cash flow. This means that, for a given level of sales, ADT is able to generate more free cash flow for investors.

Liquidity and Financial Risk

ADT’s debt-to-equity ratio is 3.87 versus a D/E of 0.59 for CFG. ADT is therefore the more solvent of the two companies, and has lower financial risk.

Valuation

ADT trades at a forward P/E of 12.95, a P/B of 2.42, and a P/S of 1.85, compared to a forward P/E of 12.25, a P/B of 1.12, and a P/S of 4.57 for CFG. ADT 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 isn’t a good investment if the stock is priced accurately. To get a sense of “value” we must compare the current price to some measure of intrinsic value such as a price target. ADT is currently priced at a -37.07% to its one-year price target of 16.75. Comparatively, CFG is -8.04% relative to its price target of 49.73. This suggests that ADT 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 1.80 for ADT and 2.40 for CFG, which implies that analysts are more bullish on the outlook for CFG.

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. ADT has a short ratio of 2.40 compared to a short interest of 1.36 for CFG. This implies that the market is currently less bearish on the outlook for CFG.

Summary

Citizens Financial Group, Inc. (NYSE:CFG) beats ADT Inc. (NYSE:ADT) on a total of 7 of the 14 factors compared between the two stocks. CFG has higher cash flow per share, is more profitable, generates a higher return on investment and has lower financial risk. In terms of valuation, CFG is the cheaper of the two stocks on an earnings and book value, Finally, CFG has better sentiment signals based on short interest.

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