Global

A Side-by-side Analysis of Regions Financial Corporation (RF) and Box, Inc. (BOX)

Regions Financial Corporation (NYSE:RF) shares are up more than 11.81% this year and recently increased 0.10% or $0.02 to settle at $19.32. Box, Inc. (NYSE:BOX), on the other hand, is up 31.06% year to date as of 05/17/2018. It currently trades at $27.68 and has returned -2.95% during the past week.

Regions Financial Corporation (NYSE:RF) and Box, Inc. (NYSE:BOX) are the two most active stocks in the Regional – Southeast Banks industry based on today’s trading volumes. Investor interest in the two stocks is clearly very high, but which is the better investment? To answer this question, we will compare the two companies across growth, profitability, risk, and valuation metrics, and also examine their analyst ratings and insider activity trends.

Growth

Companies that can consistently grow earnings at a high compound rate usually have the greatest potential to create value for shareholders in the long-run. Analysts expect RF to grow earnings at a 9.00% annual rate over the next 5 years. Comparatively, BOX is expected to grow at a 8.00% annual rate. All else equal, RF’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. Regions Financial Corporation (RF) has an EBITDA margin of 53.15%. This suggests that RF underlying business is more profitable RF’s ROI is 14.60% while BOX has a ROI of -64.50%. The interpretation is that RF’s business generates a higher return on investment than BOX’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 BOX converted 0.01% of its revenues into cash flow. This means that, for a given level of sales, BOX is able to generate more free cash flow for investors.

Liquidity and Financial Risk

RF’s debt-to-equity ratio is 0.36 versus a D/E of 5.72 for BOX. BOX is therefore the more solvent of the two companies, and has lower financial risk.

Valuation

RF trades at a forward P/E of 12.58, a P/B of 1.45, and a P/S of 5.30, compared to a forward P/E of 461.33, a P/B of 251.64, and a P/S of 7.59 for BOX. 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 -5.53% to its one-year price target of 20.45. Comparatively, BOX is 8.76% relative to its price target of 25.45. This suggests that RF is the better investment over the next year.

Risk and Volatility

Beta is a metric that investors frequently use to analyze a stock’s systematic risk. A beta above 1 implies above average market volatility. Conversely, a stock with a beta below 1 is seen as less risky than the overall market. RF has a beta of 1.26 and BOX’s beta is 1.24. BOX’s shares are therefore the less volatile of the two stocks.

Insider Activity and Investor Sentiment

Analysts often look at short interest, or the percentage of a company’s float currently being shorted by investors, to aid in their outlook for a particular stock. RF has a short ratio of 1.63 compared to a short interest of 2.30 for BOX. This implies that the market is currently less bearish on the outlook for RF.

Summary




Regions Financial Corporation (NYSE:RF) beats Box, Inc. (NYSE:BOX) on a total of 9 of the 14 factors compared between the two stocks. RF is growing fastly, is more profitable, generates a higher return on investment and has lower financial risk. In terms of valuation, RF is the cheaper of the two stocks on an earnings, book value and sales basis, RF is more undervalued relative to its price target. Finally, RF has better sentiment signals based on short interest.

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