Global

Critical Comparison: Sprint Corporation (S) vs. First Horizon National Corporation (FHN)

Sprint Corporation (NYSE:S) shares are down more than -13.58% this year and recently increased 0.39% or $0.02 to settle at $5.09. First Horizon National Corporation (NYSE:FHN), on the other hand, is down -2.25% year to date as of 05/17/2018. It currently trades at $19.54 and has returned 3.33% during the past week.

Sprint Corporation (NYSE:S) and First Horizon National Corporation (NYSE:FHN) are the two most active stocks in the Wireless Communications industry based on today’s trading volumes. The market is clearly enthusiastic about both these stocks, but which is the better investment? To answer this, we will compare the two companies based on the strength of their growth, profitability, risk, returns, valuation, analyst recommendations, and insider 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 S to grow earnings at a 5.00% annual rate over the next 5 years. Comparatively, FHN is expected to grow at a 7.00% annual rate. All else equal, FHN’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., compared to an EBITDA margin of 38.46% for First Horizon National Corporation (FHN). S’s ROI is 2.20% while FHN has a ROI of 14.70%. The interpretation is that FHN’s business generates a higher return on investment than S’s.

Cash Flow



The value of a stock is simply the present value of its future free cash flows. S’s free cash flow (“FCF”) per share for the trailing twelve months was -0.21. Comparatively, FHN’s free cash flow per share was -0.71. On a percent-of-sales basis, S’s free cash flow was -2.52% while FHN converted -15.71% of its revenues into cash flow. This means that, for a given level of sales, S is able to generate more free cash flow for investors.

Liquidity and Financial Risk

S’s debt-to-equity ratio is 1.41 versus a D/E of 0.29 for FHN. S is therefore the more solvent of the two companies, and has lower financial risk.

Valuation

S trades at a forward P/E of 149.71, a P/B of 0.78, and a P/S of 0.63, compared to a forward P/E of 11.56, a P/B of 1.53, and a P/S of 5.56 for FHN. 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 is not necessarily a value stock. Most of the time, a stock is cheap for good reason. A stock only has value if the current price is substantially below the price at which it should trade in the future. S is currently priced at a -1.74% to its one-year price target of 5.18. Comparatively, FHN is -12.46% relative to its price target of 22.32. This suggests that FHN 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. S has a beta of 0.60 and FHN’s beta is 0.99. S’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. S has a short ratio of 6.86 compared to a short interest of 7.43 for FHN. This implies that the market is currently less bearish on the outlook for S.

Summary




First Horizon National Corporation (NYSE:FHN) beats Sprint Corporation (NYSE:S) on a total of 7 of the 14 factors compared between the two stocks. FHN has higher cash flow per share, is more profitable, generates a higher return on investment and has lower financial risk. FHN is more undervalued relative to its price target. Finally, SWN has better sentiment signals based on short interest.

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