CBS Corporation (NYSE:CBS) shares are down more than -12.03% this year and recently decreased -0.75% or -$0.39 to settle at $51.90. Annaly Capital Management, Inc. (NYSE:NLY), on the other hand, is down -11.10% year to date as of 03/13/2018. It currently trades at $10.57 and has returned 3.02% during the past week.
CBS Corporation (NYSE:CBS) and Annaly Capital Management, Inc. (NYSE:NLY) 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.
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 CBS to grow earnings at a 15.40% annual rate over the next 5 years. Comparatively, NLY is expected to grow at a -2.04% annual rate. All else equal, CBS’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 164.57% for Annaly Capital Management, Inc. (NLY). CBS’s ROI is 17.70% while NLY has a ROI of 1.60%. The interpretation is that CBS’s business generates a higher return on investment than NLY’s.
Cash is king when it comes to investing. CBS’s free cash flow (“FCF”) per share for the trailing twelve months was -0.62. Comparatively, NLY’s free cash flow per share was -. On a percent-of-sales basis, CBS’s free cash flow was -1.73% while NLY converted 0% of its revenues into cash flow. This means that, for a given level of sales, NLY is able to generate more free cash flow for investors.
Liquidity and Financial Risk
CBS’s debt-to-equity ratio is 5.14 versus a D/E of 6.45 for NLY. NLY is therefore the more solvent of the two companies, and has lower financial risk.
CBS trades at a forward P/E of 8.82, a P/B of 10.22, and a P/S of 1.53, compared to a forward P/E of 9.34, a P/B of 0.93, and a P/S of 4.36 for NLY. 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 is not necessarily a value stock. Most of the time, a stock is cheap for good reason. A stock only has value if the current price is substantially below the price at which it should trade in the future. CBS is currently priced at a -26.19% to its one-year price target of 70.32. Comparatively, NLY is -2.04% relative to its price target of 10.79. This suggests that CBS 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 2.10 for CBS and 3.00 for NLY, which implies that analysts are more bullish on the outlook for NLY.
Risk and Volatility
Analyst use beta to measure a stock’s volatility relative to the overall market. Stocks with a beta above 1 tend to have bigger swings in price than the market as a whole, the opposite being the case for stocks with a beta below 1. CBS has a beta of 1.50 and NLY’s beta is 0.14. NLY’s shares are therefore the less volatile of the two stocks.
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. CBS has a short ratio of 3.24 compared to a short interest of 2.79 for NLY. This implies that the market is currently less bearish on the outlook for NLY.
CBS Corporation (NYSE:CBS) beats Annaly Capital Management, Inc. (NYSE:NLY) on a total of 8 of the 14 factors compared between the two stocks. CBS is growing fastly, generates a higher return on investment, higher liquidity and has lower financial risk. In terms of valuation, CBS is the cheaper of the two stocks on an earnings and sales basis, CBS is more undervalued relative to its price target. Finally, STLD has better sentiment signals based on short interest.