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Critical Comparison: The Bank of New York Mellon Corporation (BK) vs. Anadarko Petroleum Corporation (APC)

The Bank of New York Mellon Corporation (NYSE:BK) shares are down more than -4.90% this year and recently decreased -1.52% or -$0.79 to settle at $51.22. Anadarko Petroleum Corporation (NYSE:APC), on the other hand, is up 16.41% year to date as of 09/13/2018. It currently trades at $62.44 and has returned -1.95% during the past week.

The Bank of New York Mellon Corporation (NYSE:BK) and Anadarko Petroleum Corporation (NYSE:APC) are the two most active stocks in the Asset Management industry based on today’s trading volumes. Investors are clearly interested in the two names, but is one a better choice than the other? We will compare the two companies across growth, profitability, risk, valuation, and insider trends to answer this question.

Growth

The ability to grow earnings at a compound rate over time is a crucial determinant of investment value. Analysts expect BK to grow earnings at a 8.16% annual rate over the next 5 years. Comparatively, APC is expected to grow at a 12.00% annual rate. All else equal, APC’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 37.17% for Anadarko Petroleum Corporation (APC). BK’s ROI is 3.20% while APC has a ROI of -1.40%. The interpretation is that BK’s business generates a higher return on investment than APC’s.

Cash Flow



The value of a stock is simply the present value of its future free cash flows. BK’s free cash flow (“FCF”) per share for the trailing twelve months was +1.77. Comparatively, APC’s free cash flow per share was -1.25. On a percent-of-sales basis, BK’s free cash flow was 10.65% while APC converted -5.38% of its revenues into cash flow. This means that, for a given level of sales, BK is able to generate more free cash flow for investors.

Liquidity and Financial Risk

BK’s debt-to-equity ratio is 0.74 versus a D/E of 1.83 for APC. APC is therefore the more solvent of the two companies, and has lower financial risk.

Valuation

BK trades at a forward P/E of 11.42, a P/B of 1.36, and a P/S of 9.66, compared to a forward P/E of 16.12, a P/B of 3.54, and a P/S of 2.71 for APC. 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. BK is currently priced at a -14.28% to its one-year price target of 59.75. Comparatively, APC is -27.03% relative to its price target of 85.57. This suggests that APC is the better investment over the next year.

Risk and Volatility

Analyst use beta to measure a stock’s volatility relative to the overall market. Stocks with a beta above 1 tend to have bigger swings in price than the market as a whole, the opposite being the case for stocks with a beta below 1. BK has a beta of 1.04 and APC’s beta is 1.30. BK’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. BK has a short ratio of 3.16 compared to a short interest of 2.58 for APC. This implies that the market is currently less bearish on the outlook for APC.

Summary




The Bank of New York Mellon Corporation (NYSE:BK) beats Anadarko Petroleum Corporation (NYSE:APC) on a total of 8 of the 14 factors compared between the two stocks. BK is more profitable, generates a higher return on investment, has higher cash flow per share, has a higher cash conversion rate and has lower financial risk. In terms of valuation, BK is the cheaper of the two stocks on an earnings and book value, Finally, PNC has better sentiment signals based on short interest.

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