Cardinal Health, Inc. (NYSE:CAH) shares are up more than 17.95% this year and recently decreased -0.12% or -$0.09 to settle at $72.27. CNH Industrial N.V. (NYSE:CNHI), on the other hand, is down -0.82% year to date as of 03/13/2018. It currently trades at $13.29 and has returned -1.63% during the past week.
Cardinal Health, Inc. (NYSE:CAH) and CNH Industrial N.V. (NYSE:CNHI) are the two most active stocks in the market 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.
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 CAH to grow earnings at a 7.35% annual rate over the next 5 years. Comparatively, CNHI is expected to grow at a 29.50% annual rate. All else equal, CNHI’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 6.1% for CNH Industrial N.V. (CNHI). CAH’s ROI is 8.70% while CNHI has a ROI of 6.40%. The interpretation is that CAH’s business generates a higher return on investment than CNHI’s.
Cash is king when it comes to investing. CAH’s free cash flow (“FCF”) per share for the trailing twelve months was +0.10. Comparatively, CNHI’s free cash flow per share was -. On a percent-of-sales basis, CAH’s free cash flow was 0.02% while CNHI converted 0% of its revenues into cash flow. This means that, for a given level of sales, CAH is able to generate more free cash flow for investors.
Liquidity and Financial Risk
CAH’s debt-to-equity ratio is 1.28 versus a D/E of 5.90 for CNHI. CNHI is therefore the more solvent of the two companies, and has lower financial risk.
CAH trades at a forward P/E of 11.84, a P/B of 3.00, and a P/S of 0.17, compared to a forward P/E of 16.45, a P/B of 4.13, and a P/S of 0.66 for CNHI. CAH is the cheaper of the two stocks on an earnings, book value and sales basis. 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. CAH is currently priced at a -2.25% to its one-year price target of 73.93. Comparatively, CNHI is -11.75% relative to its price target of 15.06. This suggests that CNHI 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 3.10 for CAH and 2.60 for CNHI, which implies that analysts are more bullish on the outlook for CAH.
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. CAH has a beta of 1.04 and CNHI’s beta is 0.99. CNHI’s shares are therefore the less volatile of the two stocks.
Insider Activity and Investor Sentiment
Short interest, or the percentage of a stock’s tradable shares currently being shorted, is another metric investors use to get a pulse on sentiment.CAH has a short ratio of 4.17 compared to a short interest of 5.03 for CNHI. This implies that the market is currently less bearish on the outlook for CAH.
Cardinal Health, Inc. (NYSE:CAH) beats CNH Industrial N.V. (NYSE:CNHI) on a total of 9 of the 14 factors compared between the two stocks. CAH 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, CAH is the cheaper of the two stocks on an earnings, book value and sales basis, Finally, CAH has better sentiment signals based on short interest.