Monsanto Company (NYSE:MON) shares are up more than 7.64% this year and recently increased 0.24% or $0.3 to settle at $125.70. US Foods Holding Corp. (NYSE:USFD), on the other hand, is up 7.86% year to date as of 04/16/2018. It currently trades at $34.44 and has returned 3.58% during the past week.
Monsanto Company (NYSE:MON) and US Foods Holding Corp. (NYSE:USFD) are the two most active stocks in the Agricultural Chemicals industry based on today’s trading volumes. To determine if one is a better investment than the other, we will compare the two companies’ growth, profitability, risk, return, and valuation characteristics, as well as their analyst ratings and sentiment signals.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 MON to grow earnings at a 8.00% annual rate over the next 5 years. Comparatively, USFD is expected to grow at a 25.00% annual rate. All else equal, USFD’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 3.96% for US Foods Holding Corp. (USFD). MON’s ROI is 17.80% while USFD has a ROI of 6.60%. The interpretation is that MON’s business generates a higher return on investment than USFD’s.Cash Flow
Cash is king when it comes to investing. MON’s free cash flow (“FCF”) per share for the trailing twelve months was -0.32. Comparatively, USFD’s free cash flow per share was +0.82. On a percent-of-sales basis, MON’s free cash flow was -0.96% while USFD converted 0.73% of its revenues into cash flow. This means that, for a given level of sales, USFD is able to generate more free cash flow for investors.Liquidity and Financial Risk
Balance sheet risk is one of the biggest factors to consider before investing. MON has a current ratio of 1.40 compared to 1.40 for USFD. This means that MON can more easily cover its most immediate liabilities over the next twelve months. MON’s debt-to-equity ratio is 1.01 versus a D/E of 1.42 for USFD. USFD is therefore the more solvent of the two companies, and has lower financial risk.Valuation
MON trades at a forward P/E of 20.49, a P/B of 7.15, and a P/S of 3.79, compared to a forward P/E of 14.71, a P/B of 2.77, and a P/S of 0.31 for USFD. MON is the expensive 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
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”. MON is currently priced at a -0.55% to its one-year price target of 126.40. Comparatively, USFD is -9.56% relative to its price target of 38.08. This suggests that USFD is the better investment over the next year.
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. MON has a short ratio of 1.64 compared to a short interest of 3.33 for USFD. This implies that the market is currently less bearish on the outlook for MON.Summary
US Foods Holding Corp. (NYSE:USFD) beats Monsanto Company (NYSE:MON) on a total of 9 of the 14 factors compared between the two stocks. USFD is more profitable, has higher cash flow per share and has a higher cash conversion rate. In terms of valuation, USFD is the cheaper of the two stocks on an earnings, book value and sales basis, USFD is more undervalued relative to its price target. Finally, CVE has better sentiment signals based on short interest.