Earnings

Critical Comparison: Viacom, Inc. (VIAB) vs. Jabil Inc. (JBL)

Viacom, Inc. (NASDAQ:VIAB) shares are up more than 6.46% this year and recently decreased -0.06% or -$0.02 to settle at $32.80. Jabil Inc. (NYSE:JBL), on the other hand, is up 7.70% year to date as of 03/13/2018. It currently trades at $28.27 and has returned 2.91% during the past week.

Viacom, Inc. (NASDAQ:VIAB) and Jabil Inc. (NYSE:JBL) 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

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 VIAB to grow earnings at a 7.53% annual rate over the next 5 years. Comparatively, JBL is expected to grow at a 12.00% annual rate. All else equal, JBL’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. EBITDA margin of 7.05% for Jabil Inc. (JBL). VIAB’s ROI is 14.50% while JBL has a ROI of 6.30%. The interpretation is that VIAB’s business generates a higher return on investment than JBL’s.

Cash Flow 




Cash is king when it comes to investing. VIAB’s free cash flow (“FCF”) per share for the trailing twelve months was -0.24. Comparatively, JBL’s free cash flow per share was -1.60. On a percent-of-sales basis, VIAB’s free cash flow was -0.73% while JBL converted -1.47% of its revenues into cash flow. This means that, for a given level of sales, VIAB is able to generate more free cash flow for investors.

Liquidity and Financial Risk

Liquidity and leverage ratios measure a company’s ability to meet short-term obligations and longer-term debts. VIAB has a current ratio of 1.40 compared to 1.00 for JBL. This means that VIAB can more easily cover its most immediate liabilities over the next twelve months. VIAB’s debt-to-equity ratio is 1.56 versus a D/E of 0.91 for JBL. VIAB is therefore the more solvent of the two companies, and has lower financial risk.

Valuation

VIAB trades at a forward P/E of 7.67, a P/B of 2.02, and a P/S of 1.04, compared to a forward P/E of 9.73, a P/B of 2.15, and a P/S of 0.25 for JBL. 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. VIAB is currently priced at a -5.07% to its one-year price target of 34.55. Comparatively, JBL is -11.1% relative to its price target of 31.80. This suggests that JBL 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 2.90 for VIAB and 2.60 for JBL, which implies that analysts are more bullish on the outlook for VIAB.

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. VIAB has a beta of 1.48 and JBL’s beta is 0.44. JBL’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. VIAB has a short ratio of 3.78 compared to a short interest of 4.36 for JBL. This implies that the market is currently less bearish on the outlook for VIAB.

Summary

Jabil Inc. (NYSE:JBL) beats Viacom, Inc. (NASDAQ:VIAB) on a total of 7 of the 14 factors compared between the two stocks. JBL generates a higher return on investment, is more profitable and has lower financial risk. JBL is more undervalued relative to its price target. Finally, HRG has better sentiment signals based on short interest.

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