Earnings

Comparing Valuation And Performance: Fidelity National Financial, Inc. (FNF), Prospect Capital Corporation (PSEC)

The shares of Fidelity National Financial, Inc. have decreased by more than -10.78% this year alone. The shares recently went down by -7.84% or -$2.98 and now trades at $35.01. The shares of Prospect Capital Corporation (NASDAQ:PSEC), has jumped by 4.45% year to date as of 10/11/2018. The shares currently trade at $7.04 and have been able to report a change of -2.09% over the past one week.

The stock of Fidelity National Financial, Inc. and Prospect Capital Corporation were two of the most active stocks on Thursday. Investors seem to be very interested in what happens to the stocks of these two companies but do investors favor one over the other? We will analyze the growth, profitability, risk, valuation, and insider trends of both companies and see which one investors prefer.

Next 5Y EPS Growth: 13.70% versus 5.00%

When a company is able to grow consistently in terms of earnings at a high compound rate have the highest likelihood of creating value for its shareholders over time. Analysts have predicted that FNF will grow it’s earning at a 13.70% annual rate in the next 5 years. This is in contrast to PSEC which will have a positive growth at a 5.00% annual rate. This means that the higher growth rate of FNF implies a greater potential for capital appreciation over the years.

Profitability and Returns

Growth alone cannot be used to see if the company will be valuable. Shareholders will be the losers if a company invest in ventures that aren’t profitable enough to support upbeat growth. In order for us to accurately measure profitability and return, we will be using the EBITDA margin and Return on Investment (ROI), which balances the difference in capital structure. FNF has an EBITDA margin of 13.18%, this implies that the underlying business of FNF is more profitable. The ROI of FNF is 11.20% while that of PSEC is 4.90%. These figures suggest that FNF ventures generate a higher ROI than that of PSEC.

Cash Flow



The value of a stock is ultimately determined by the amount of cash flow that the investors have available. Over the last 12 months, FNF’s free cash flow per share is a positive 3.26.

Liquidity and Financial Risk

The ability of a company to meet up with its short-term obligations and be able to clear its longer-term debts is measured using Liquidity and leverage ratios. The debt ratio of FNF is 0.16 compared to 0.68 for PSEC. PSEC can be able to settle its long-term debts and thus is a lower financial risk than FNF.

Valuation

FNF currently trades at a forward P/E of 11.58, a P/B of 2.08, and a P/S of 1.41 while PSEC trades at a forward P/E of 8.21, a P/B of 0.75, and a P/S of 3.97. This means that looking at the earnings, book values and sales basis, FNF is the cheaper one. It is very obvious that earnings are the most important factors to investors, thus analysts are most likely to place their bet on the P/E.

Analyst Price Targets and Opinions




The mistake some people make is that they think a cheap stock has more value to it. In order to know the value of a stock, there is need to compare its current price to its likely trading price in the future. The price of FNF is currently at a -24.87% to its one-year price target of 46.60. Looking at its rival pricing, PSEC is at a 17.33% relative to its price target of 6.00.

When looking at the investment recommendation on say a scale of 1 to 5 (1 being a strong buy, 3 a hold, and 5 a sell), FNF is given a 2.00 while 3.50 placed for PSEC. This means that analysts are more bullish on the outlook for PSEC stocks.

Insider Activity and Investor Sentiment

Short interest or otherwise called the percentage of a stock’s tradable shares currently being shorted is another data that investors use to get a handle on sentiment. The short ratio for FNF is 5.75 while that of PSEC is just 12.89. This means that analysts are more bullish on the forecast for FNF stock.

Conclusion

The stock of Prospect Capital Corporation defeats that of Fidelity National Financial, Inc. when the two are compared, with PSEC taking 3 out of the total factors that were been considered. PSEC happens to be more profitable, generates a higher ROI, has higher cash flow per share, higher liquidity and has a lower financial risk. When looking at the stock valuation, PSEC is the cheaper one on an earnings, book value and sales basis. Finally, the sentiment signal for PSEC is better on when it is viewed on short interest.

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