Global

A Side-by-side Analysis of Apple Inc. (AAPL) and First Data Corporation (FDC)

Apple Inc. (NASDAQ:AAPL) shares are up more than 33.79% this year and recently increased 2.42% or $5.34 to settle at $226.41. First Data Corporation (NYSE:FDC), on the other hand, is up 54.04% year to date as of 09/13/2018. It currently trades at $25.74 and has returned 1.42% during the past week.

Apple Inc. (NASDAQ:AAPL) and First Data Corporation (NYSE:FDC) are the two most active stocks in the Electronic Equipment 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 AAPL to grow earnings at a 13.03% annual rate over the next 5 years. Comparatively, FDC is expected to grow at a 12.15% annual rate. All else equal, AAPL’s higher growth rate would imply a greater potential for capital appreciation.

Profitability and Returns

Growth in and of itself is not necessarily valuable, and it can even be harmful to shareholders if companies overinvest in unprofitable projects in pursuit of that growth. We will use EBITDA margin and Return on Investment (ROI), which adjust for differences in capital structure, as measure of profitability and return. , compared to an EBITDA margin of 13.76% for First Data Corporation (FDC). AAPL’s ROI is 18.30% while FDC has a ROI of 9.00%. The interpretation is that AAPL’s business generates a higher return on investment than FDC’s.

Cash Flow



Earnings don’t always accurately reflect the amount of cash that a company brings in. AAPL’s free cash flow (“FCF”) per share for the trailing twelve months was +1.54. Comparatively, FDC’s free cash flow per share was +0.56. On a percent-of-sales basis, AAPL’s free cash flow was 3.3% while FDC converted 4.34% of its revenues into cash flow. This means that, for a given level of sales, FDC is able to generate more free cash flow for investors.

Liquidity and Financial Risk

Liquidity and leverage ratios are important because they reveal the financial health of a company. AAPL has a current ratio of 1.30 compared to 1.00 for FDC. This means that AAPL can more easily cover its most immediate liabilities over the next twelve months. AAPL’s debt-to-equity ratio is 1.00 versus a D/E of 5.20 for FDC. FDC is therefore the more solvent of the two companies, and has lower financial risk.

Valuation

AAPL trades at a forward P/E of 16.69, a P/B of 9.62, and a P/S of 4.32, compared to a forward P/E of 15.44, a P/B of 6.67, and a P/S of 2.21 for FDC. AAPL is the expensive 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

Just because a stock is cheaper doesn’t mean there’s more value to be had. In order to assess value we need to compare the current price to where it’s likely to trade in the future. AAPL is currently priced at a 1.79% to its one-year price target of 222.42. Comparatively, FDC is -5.54% relative to its price target of 27.25. This suggests that FDC is the better investment over the next year.

Insider Activity and Investor Sentiment

Short interest is another tool that analysts use to gauge investor sentiment. It represents the percentage of a stock’s tradable shares that are being shorted. AAPL has a short ratio of 1.58 compared to a short interest of 4.01 for FDC. This implies that the market is currently less bearish on the outlook for AAPL.

Summary




First Data Corporation (NYSE:FDC) beats Apple Inc. (NASDAQ:AAPL) on a total of 7 of the 14 factors compared between the two stocks. FDC is growing fastly. In terms of valuation, FDC is the cheaper of the two stocks on an earnings, book value and sales basis, FDC is more undervalued relative to its price target. Finally, RIO has better sentiment signals based on short interest.

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