Global

Dissecting the Numbers for Citigroup Inc. (C) and The Procter & Gamble Company (PG)

Citigroup Inc. (NYSE:C) shares are down more than -7.28% this year and recently decreased -1.23% or -$0.86 to settle at $68.99. The Procter & Gamble Company (NYSE:PG), on the other hand, is down -14.31% year to date as of 07/19/2018. It currently trades at $78.73 and has returned -0.20% during the past week.

Citigroup Inc. (NYSE:C) and The Procter & Gamble Company (NYSE:PG) are the two most active stocks in the Money Center Banks industry based on today’s trading volumes. To determine if one is a better investment than the other, we will compare the two companies’ growth, profitability, risk, return, and valuation characteristics, as well as their analyst ratings and sentiment signals.

Growth

Companies that can increase earnings at a high compound rate over time are attractive to investors. Analysts expect C to grow earnings at a 13.85% annual rate over the next 5 years. Comparatively, PG is expected to grow at a 5.99% annual rate. All else equal, C’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 25.43% for The Procter & Gamble Company (PG). C’s ROI is 7.60% while PG has a ROI of 12.70%. The interpretation is that PG’s business generates a higher return on investment than C’s.

Cash Flow



Cash is king when it comes to investing. On a percent-of-sales basis, C’s free cash flow was 0% while PG converted 0.93% of its revenues into cash flow. This means that, for a given level of sales, PG is able to generate more free cash flow for investors.

Liquidity and Financial Risk

C’s debt-to-equity ratio is 1.22 versus a D/E of 0.66 for PG. C is therefore the more solvent of the two companies, and has lower financial risk.

Valuation

C trades at a forward P/E of 9.32, a P/B of 0.97, and a P/S of 2.83, compared to a forward P/E of 17.84, a P/B of 3.72, and a P/S of 2.99 for PG. C 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 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. C is currently priced at a -17.2% to its one-year price target of 83.32.

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. C has a beta of 1.46 and PG’s beta is 0.55. PG’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. C has a short ratio of 1.06 compared to a short interest of 2.57 for PG. This implies that the market is currently less bearish on the outlook for C.

Summary




The Procter & Gamble Company (NYSE:PG) beats Citigroup Inc. (NYSE:C) on a total of 7 of the 13 factors compared between the two stocks. PG is growing fastly, has higher cash flow per share, has a higher cash conversion rate, higher liquidity and has lower financial risk. In terms of valuation, C is the cheaper of the two stocks on an earnings, book value and sales basis, Finally, SYMC has better sentiment signals based on short interest.

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