Earnings

Dissecting the Numbers for AbbVie Inc. (ABBV) and BB&T Corporation (BBT)

AbbVie Inc. (NYSE:ABBV) shares are down more than -2.13% this year and recently increased 0.40% or $0.38 to settle at $94.65. BB&T Corporation (NYSE:BBT), on the other hand, is up 4.75% year to date as of 03/30/2018. It currently trades at $52.04 and has returned -0.52% during the past week.

AbbVie Inc. (NYSE:ABBV) and BB&T Corporation (NYSE:BBT) are the two most active stocks in the Drug Manufacturers – Major industry 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

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 ABBV to grow earnings at a 16.81% annual rate over the next 5 years. Comparatively, BBT is expected to grow at a 4.10% annual rate. All else equal, ABBV’s higher growth rate would imply a greater potential for capital appreciation.

Profitability and Returns

Growth in and of itself is not necessarily valuable, and it can even be harmful to shareholders if companies overinvest in unprofitable projects in pursuit of that growth. We will use EBITDA margin and Return on Investment (ROI), which adjust for differences in capital structure, as measure of profitability and return. , compared to an EBITDA margin of 43.78% for BB&T Corporation (BBT). ABBV’s ROI is 25.40% while BBT has a ROI of 9.60%. The interpretation is that ABBV’s business generates a higher return on investment than BBT’s.

Cash Flow



The value of a stock is simply the present value of its future free cash flows. ABBV’s free cash flow (“FCF”) per share for the trailing twelve months was +0.86. Comparatively, BBT’s free cash flow per share was -. On a percent-of-sales basis, ABBV’s free cash flow was 4.84% while BBT converted 0% of its revenues into cash flow. This means that, for a given level of sales, ABBV is able to generate more free cash flow for investors.

Liquidity and Financial Risk

ABBV’s debt-to-equity ratio is 7.33 versus a D/E of 0.80 for BBT. ABBV is therefore the more solvent of the two companies, and has lower financial risk.

Valuation

ABBV trades at a forward P/E of 10.85, a P/B of 29.67, and a P/S of 5.31, compared to a forward P/E of 12.20, a P/B of 1.53, and a P/S of 5.51 for BBT. 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. ABBV is currently priced at a -21.53% to its one-year price target of 120.62. Comparatively, BBT is -10.11% relative to its price target of 57.89. This suggests that ABBV is the better investment over the next year.

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. ABBV has a beta of 1.62 and BBT’s beta is 1.03. BBT’s shares are therefore the less volatile of the two stocks.

Insider Activity and Investor Sentiment

Short interest is another tool that analysts use to gauge investor sentiment. It represents the percentage of a stock’s tradable shares that are being shorted. ABBV has a short ratio of 2.17 compared to a short interest of 2.12 for BBT. This implies that the market is currently less bearish on the outlook for BBT.

Summary




AbbVie Inc. (NYSE:ABBV) beats BB&T Corporation (NYSE:BBT) on a total of 9 of the 14 factors compared between the two stocks. ABBV is growing fastly, generates a higher return on investment, has higher cash flow per share, has a higher cash conversion rate and higher liquidity. In terms of valuation, ABBV is the cheaper of the two stocks on an earnings and sales basis, ABBV is more undervalued relative to its price target. Finally, HAL has better sentiment signals based on short interest.

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