BRF S.A. (NYSE:BRFS) shares are down more than -44.94% this year and recently decreased -2.36% or -$0.15 to settle at $6.20. Federated Investors, Inc. (NYSE:FII), on the other hand, is down -13.19% year to date as of 04/16/2018. It currently trades at $31.32 and has returned -3.09% during the past week.
BRF S.A. (NYSE:BRFS) and Federated Investors, Inc. (NYSE:FII) are the two most active stocks in the Meat Products industry 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
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 BRFS to grow earnings at a -2.60% annual rate over the next 5 years. Comparatively, FII is expected to grow at a 9.49% annual rate. All else equal, FII’s higher growth rate would imply a greater potential for capital appreciation.Profitability and Returns
Growth isn’t very attractive to investors if companies are sacrificing profitability and shareholder returns to achieve that growth. We will use EBITDA margin and Return on Investment (ROI), which control for differences in capital structure between the two companies, to measure profitability and return. EBITDA margin of 33.17% for Federated Investors, Inc. (FII). BRFS’s ROI is 3.10% while FII has a ROI of 38.10%. The interpretation is that FII’s business generates a higher return on investment than BRFS’s.Cash Flow
The amount of free cash flow available to investors is ultimately what determines the value of a stock. BRFS’s free cash flow (“FCF”) per share for the trailing twelve months was +0.76. Comparatively, FII’s free cash flow per share was +0.51. On a percent-of-sales basis, BRFS’s free cash flow was 5.79% while FII converted 4.67% of its revenues into cash flow. This means that, for a given level of sales, BRFS is able to generate more free cash flow for investors.Liquidity and Financial Risk
Liquidity and leverage ratios provide insight into the financial health of a company, and allow investors to determine the likelihood that the company will be able to continue operating as a going concern. BRFS has a current ratio of 1.30 compared to 3.40 for FII. This means that FII can more easily cover its most immediate liabilities over the next twelve months. BRFS’s debt-to-equity ratio is 1.83 versus a D/E of 0.22 for FII. BRFS is therefore the more solvent of the two companies, and has lower financial risk.Valuation
BRFS trades at a forward P/E of 13.19, a P/B of 1.48, and a P/S of 0.53, compared to a forward P/E of 11.43, a P/B of 3.99, and a P/S of 2.93 for FII. 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. BRFS is currently priced at a -47.1% to its one-year price target of 11.72. Comparatively, FII is -7.2% relative to its price target of 33.75. This suggests that BRFS is the better investment over the next year.
Risk and Volatility
Beta is an important measure that gives investors a sense of the market risk associated with a particular stock. A beta above 1 signals above average market risk, while a beta below 1 implies below average volatility. BRFS has a beta of 0.76 and FII’s beta is 1.32. BRFS’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. BRFS has a short ratio of 3.21 compared to a short interest of 7.21 for FII. This implies that the market is currently less bearish on the outlook for BRFS.Summary
BRF S.A. (NYSE:BRFS) beats Federated Investors, Inc. (NYSE:FII) on a total of 8 of the 14 factors compared between the two stocks. BRFS has higher cash flow per share and has a higher cash conversion rate. In terms of valuation, BRFS is the cheaper of the two stocks on book value and sales basis, BRFS is more undervalued relative to its price target. Finally, BRFS has better sentiment signals based on short interest.