SunTrust Banks, Inc. (NYSE:STI) shares are up more than 6.86% this year and recently decreased -1.20% or -$0.84 to settle at $69.02. Altice USA, Inc. (NYSE:ATUS), on the other hand, is up 2.53% year to date as of 07/19/2018. It currently trades at $17.64 and has returned -6.96% during the past week.
SunTrust Banks, Inc. (NYSE:STI) and Altice USA, Inc. (NYSE:ATUS) 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
The ability to grow earnings at a compound rate over time is a crucial determinant of investment value. Analysts expect STI to grow earnings at a 15.00% annual rate over the next 5 years. Comparatively, ATUS is expected to grow at a 3.00% annual rate. All else equal, STI’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. SunTrust Banks, Inc. (STI) has an EBITDA margin of 51.98%. This suggests that STI underlying business is more profitable STI’s ROI is 13.50% while ATUS has a ROI of 2.80%. The interpretation is that STI’s business generates a higher return on investment than ATUS’s.Cash Flow
Cash is king when it comes to investing. STI’s free cash flow (“FCF”) per share for the trailing twelve months was -0.22. Comparatively, ATUS’s free cash flow per share was +0.24. On a percent-of-sales basis, STI’s free cash flow was -1.05% while ATUS converted 1.9% of its revenues into cash flow. This means that, for a given level of sales, ATUS is able to generate more free cash flow for investors.Liquidity and Financial Risk
STI’s debt-to-equity ratio is 0.48 versus a D/E of 4.08 for ATUS. ATUS is therefore the more solvent of the two companies, and has lower financial risk.
STI trades at a forward P/E of 12.09, a P/B of 1.45, and a P/S of 5.01, compared to a forward P/E of 46.42, a P/B of 2.31, and a P/S of 1.36 for ATUS. 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. STI is currently priced at a -8.43% to its one-year price target of 75.37. Comparatively, ATUS is -33.98% relative to its price target of 26.72. This suggests that ATUS is the better investment over the next year.
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. STI has a short ratio of 3.26 compared to a short interest of 3.15 for ATUS. This implies that the market is currently less bearish on the outlook for ATUS.Summary
Altice USA, Inc. (NYSE:ATUS) beats SunTrust Banks, Inc. (NYSE:STI) on a total of 8 of the 14 factors compared between the two stocks. ATUS is growing fastly, has a higher cash conversion rate and higher liquidity. ATUS is more undervalued relative to its price target. Finally, ATUS has better sentiment signals based on short interest.