Finance

Critical Comparison: Walmart Inc. (WMT) vs. The Bank of New York Mellon Corporation (BK)

Walmart Inc. (NYSE:WMT) shares are down more than -9.86% this year and recently decreased -1.15% or -$1.04 to settle at $89.01. The Bank of New York Mellon Corporation (NYSE:BK), on the other hand, is down -2.91% year to date as of 08/09/2018. It currently trades at $52.29 and has returned -0.65% during the past week.

Walmart Inc. (NYSE:WMT) and The Bank of New York Mellon Corporation (NYSE:BK) are the two most active stocks in the Discount, Variety Stores industry based on today’s trading volumes. We will compare the two companies based on the strength of various metrics, including growth, profitability, risk, return, and valuation to determine if one is a better investment than the other.

Growth

The ability to consistently grow earnings at a high compound rate is a defining characteristic of the best companies for long-term investment. Analysts expect WMT to grow earnings at a 5.59% annual rate over the next 5 years. Comparatively, BK is expected to grow at a 8.04% annual rate. All else equal, BK’s higher growth rate would imply a greater potential for capital appreciation.

Profitability and Returns

Just, if not more, important than the growth rate is the quality of that growth. Growth can actual be harmful to investors if it comes at the cost of weak profitability and low returns. To adjust for differences in capital structure we’ll use EBITDA margin and Return on Investment (ROI) as measures of profitability and return., compared to an EBITDA margin of 50.9% for The Bank of New York Mellon Corporation (BK). WMT’s ROI is 10.00% while BK has a ROI of 3.20%. The interpretation is that WMT’s business generates a higher return on investment than BK’s.

Cash Flow



The amount of free cash flow available to investors is ultimately what determines the value of a stock. WMT’s free cash flow (“FCF”) per share for the trailing twelve months was +0.61. Comparatively, BK’s free cash flow per share was -. On a percent-of-sales basis, WMT’s free cash flow was 0.36% while BK converted 0% of its revenues into cash flow. This means that, for a given level of sales, WMT is able to generate more free cash flow for investors.

Liquidity and Financial Risk

WMT’s debt-to-equity ratio is 0.61 versus a D/E of 0.73 for BK. BK is therefore the more solvent of the two companies, and has lower financial risk.

Valuation

WMT trades at a forward P/E of 17.91, a P/B of 3.48, and a P/S of 0.51, compared to a forward P/E of 11.66, a P/B of 1.39, and a P/S of 10.06 for BK. WMT is the cheaper of the two stocks on sales basis but is expensive in terms of P/E and P/B ratio. 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

Investors often compare a stock’s current price to an analyst price target to get a sense of the potential upside within the next year. WMT is currently priced at a -5.75% to its one-year price target of 94.44. Comparatively, BK is -12.63% relative to its price target of 59.85. This suggests that BK 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. WMT has a beta of 0.49 and BK’s beta is 1.07. WMT’s shares are therefore the less volatile of the two stocks.

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. WMT has a short ratio of 3.42 compared to a short interest of 2.50 for BK. This implies that the market is currently less bearish on the outlook for BK.

Summary




Walmart Inc. (NYSE:WMT) beats The Bank of New York Mellon Corporation (NYSE:BK) on a total of 8 of the 14 factors compared between the two stocks. WMT generates a higher return on investment, has higher cash flow per share, has a higher cash conversion rate, higher liquidity and has lower financial risk. Finally, SYF has better sentiment signals based on short interest.

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