Piedmont Office Realty Trust, Inc. (NYSE:PDM) shares are down more than -10.05% this year and recently decreased -1.89% or -$0.34 to settle at $17.64. Enbridge Inc. (NYSE:ENB), on the other hand, is down -15.90% year to date as of 03/13/2018. It currently trades at $32.89 and has returned 3.53% during the past week.
Piedmont Office Realty Trust, Inc. (NYSE:PDM) and Enbridge Inc. (NYSE:ENB) 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.
The ability to grow earnings at a compound rate over time is a crucial determinant of investment value. Analysts expect PDM to grow earnings at a 4.00% annual rate over the next 5 years. Comparatively, ENB is expected to grow at a 4.79% annual rate. All else equal, ENB’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. Piedmont Office Realty Trust, Inc. (PDM) has an EBITDA margin of 48.87%. This suggests that PDM underlying business is more profitable PDM’s ROI is 2.20% while ENB has a ROI of 3.70%. The interpretation is that ENB’s business generates a higher return on investment than PDM’s.
The value of a stock is simply the present value of its future free cash flows. On a percent-of-sales basis, PDM’s free cash flow was 0% while ENB converted -3.47% of its revenues into cash flow. This means that, for a given level of sales, PDM is able to generate more free cash flow for investors.
Liquidity and Financial Risk
PDM’s debt-to-equity ratio is 0.87 versus a D/E of 1.29 for ENB. ENB is therefore the more solvent of the two companies, and has lower financial risk.
PDM trades at a forward P/E of 37.53, a P/B of 1.28, and a P/S of 4.42, compared to a forward P/E of 16.98, a P/B of 1.39, and a P/S of 1.61 for ENB. PDM is the cheaper of the two stocks on book value basis but is expensive in terms of P/E and P/S 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
When investing it’s crucial to distinguish between price and value. As Warren Buffet said, “price is what you pay, value is what you get”. PDM is currently priced at a -13.53% to its one-year price target of 20.40. Comparatively, ENB is -21.05% relative to its price target of 41.66. This suggests that ENB 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 2.60 for PDM and 2.30 for ENB, which implies that analysts are more bullish on the outlook for PDM.
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. PDM has a beta of 0.61 and ENB’s beta is 0.66. PDM’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. PDM has a short ratio of 2.73 compared to a short interest of 7.58 for ENB. This implies that the market is currently less bearish on the outlook for PDM.
Enbridge Inc. (NYSE:ENB) beats Piedmont Office Realty Trust, Inc. (NYSE:PDM) on a total of 7 of the 14 factors compared between the two stocks. ENB is more profitable, generates a higher return on investment and higher liquidity. In terms of valuation, ENB is the cheaper of the two stocks on an earnings and sales basis, ENB is more undervalued relative to its price target. Finally, LDOS has better sentiment signals based on short interest.