Regions Financial Corporation (NYSE:RF) shares are up more than 6.89% this year and recently decreased -0.22% or -$0.04 to settle at $18.47. Visa Inc. (NYSE:V), on the other hand, is up 6.89% year to date as of 04/16/2018. It currently trades at $121.88 and has returned 2.60% during the past week.
Regions Financial Corporation (NYSE:RF) and Visa Inc. (NYSE:V) are the two most active stocks in the Regional – Southeast Banks industry 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.Growth
Companies that can increase earnings at a high compound rate over time are attractive to investors. Analysts expect RF to grow earnings at a 9.00% annual rate over the next 5 years. Comparatively, V is expected to grow at a 18.17% annual rate. All else equal, V’s higher growth rate would imply a greater potential for capital appreciation.Profitability and Returns
A high growth rate isn’t necessarily valuable to investors. In fact, companies that overinvest in low return projects just to achieve a high growth rate can actually destroy shareholder value. Profitability and returns are a measure of the quality of a company’s business and its growth opportunities. We’ll use EBITDA margin and Return on Investment (ROI) to measure this., compared to an EBITDA margin of 69.76% for Visa Inc. (V). RF’s ROI is 14.60% while V has a ROI of 15.70%. The interpretation is that V’s business generates a higher return on investment than RF’s.Cash Flow
If there’s one thing investors care more about than earnings, it’s cash flow. On a percent-of-sales basis, RF’s free cash flow was 0% while V converted 10.33% of its revenues into cash flow. This means that, for a given level of sales, V is able to generate more free cash flow for investors.Liquidity and Financial Risk
RF’s debt-to-equity ratio is 0.29 versus a D/E of 0.60 for V. V is therefore the more solvent of the two companies, and has lower financial risk.
RF trades at a forward P/E of 12.30, a P/B of 1.39, and a P/S of 5.33, compared to a forward P/E of 23.51, a P/B of 9.89, and a P/S of 14.70 for V. RF is the cheaper 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
A cheap stock isn’t a good investment if the stock is priced accurately. To get a sense of “value” we must compare the current price to some measure of intrinsic value such as a price target. RF is currently priced at a -8.29% to its one-year price target of 20.14. Comparatively, V is -12.87% relative to its price target of 139.88. This suggests that V is the better investment over the next year.
Risk and Volatility
No discussion on value is complete without taking into account risk. Analysts use a stock’s beta, which measures the volatility of a stock compared to the overall market, to measure systematic risk. A stock with a beta above 1 is more volatile than the market. Conversely, a beta below 1 implies a below average level of risk. RF has a beta of 1.27 and V’s beta is 0.99. V’s shares are therefore the less volatile of the two stocks.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. RF has a short ratio of 1.42 compared to a short interest of 2.78 for V. This implies that the market is currently less bearish on the outlook for RF.Summary
Visa Inc. (NYSE:V) beats Regions Financial Corporation (NYSE:RF) on a total of 9 of the 14 factors compared between the two stocks. V has lower financial risk, is more profitable, 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, RF is the cheaper of the two stocks on an earnings, book value and sales basis, V is more undervalued relative to its price target. Finally, CVE has better sentiment signals based on short interest.