Earnings

Set Sail With The AES Corporation (AES), Stericycle, Inc. (SRCL)

The shares of The AES Corporation have increased by more than 6.83% this year alone. The shares recently went up by 2.03% or $0.23 and now trades at $11.57. The shares of Stericycle, Inc. (NASDAQ:SRCL), has slumped by -11.49% year to date as of 04/16/2018. The shares currently trade at $60.18 and have been able to report a change of 5.38% over the past one week.

The stock of The AES Corporation and Stericycle, Inc. were two of the most active stocks on Monday. Investors seem to be very interested in what happens to the stocks of these two companies but do investors favor one over the other? We will analyze the growth, profitability, risk, valuation, and insider trends of both companies and see which one investors prefer.

Next 5Y EPS Growth: 7.60% versus 7.00%

When a company is able to grow consistently in terms of earnings at a high compound rate have the highest likelihood of creating value for its shareholders over time. Analysts have predicted that AES will grow it’s earning at a 7.60% annual rate in the next 5 years. This is in contrast to SRCL which will have a positive growth at a 7.00% annual rate. This means that the higher growth rate of AES implies a greater potential for capital appreciation over the years.

Profitability and Returns

Growth alone cannot be used to see if the company will be valuable. Shareholders will be the losers if a company invest in ventures that aren’t profitable enough to support upbeat growth. In order for us to accurately measure profitability and return, we will be using the EBITDA margin and Return on Investment (ROI), which balances the difference in capital structure. The ROI of AES is -0.80% while that of SRCL is 0.20%. These figures suggest that SRCL ventures generate a higher ROI than that of AES.

Cash Flow



The value of a stock is ultimately determined by the amount of cash flow that the investors have available. Over the last 12 months, AES’s free cash flow per share is a positive 1.25, while that of SRCL is positive 1.58.

Liquidity and Financial Risk

The ability of a company to meet up with its short-term obligations and be able to clear its longer-term debts is measured using Liquidity and leverage ratios. The current ratio for AES is 1.10 and that of SRCL is 0.80. This implies that it is easier for AES to cover its immediate obligations over the next 12 months than SRCL. The debt ratio of AES is 8.10 compared to 0.95 for SRCL. AES can be able to settle its long-term debts and thus is a lower financial risk than SRCL.

Valuation

AES currently trades at a forward P/E of 8.85, a P/B of 3.10, and a P/S of 0.72 while SRCL trades at a forward P/E of 12.66, a P/B of 1.77, and a P/S of 1.43. This means that looking at the earnings, book values and sales basis, AES is the cheaper one. It is very obvious that earnings are the most important factors to investors, thus analysts are most likely to place their bet on the P/E.

Analyst Price Targets and Opinions




The mistake some people make is that they think a cheap stock has more value to it. In order to know the value of a stock, there is need to compare its current price to its likely trading price in the future. The price of AES is currently at a -8.97% to its one-year price target of 12.71. Looking at its rival pricing, SRCL is at a -21.62% relative to its price target of 76.78.

When looking at the investment recommendation on say a scale of 1 to 5 (1 being a strong buy, 3 a hold, and 5 a sell), AES is given a 2.30 while 2.30 placed for SRCL. This means that analysts are equally bullish on their outlook for the two stocks stocks.

Insider Activity and Investor Sentiment

Short interest or otherwise called the percentage of a stock’s tradable shares currently being shorted is another data that investors use to get a handle on sentiment. The short ratio for AES is 1.90 while that of SRCL is just 5.72. This means that analysts are more bullish on the forecast for AES stock.

Conclusion

The stock of The AES Corporation defeats that of Stericycle, Inc. when the two are compared, with AES taking 5 out of the total factors that were been considered. AES happens to be more profitable, generates a higher ROI, has higher cash flow per share, higher liquidity and has a lower financial risk. When looking at the stock valuation, AES is the cheaper one on an earnings, book value and sales basis. Finally, the sentiment signal for AES is better on when it is viewed on short interest.

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