Earnings

Which is more compelling pick right now? – BRF S.A. (BRFS), Unum Group (UNM)

The shares of BRF S.A. have decreased by more than -50.09% this year alone. The shares recently went down by -6.18% or -$0.37 and now trades at $5.62. The shares of Unum Group (NYSE:UNM), has slumped by -30.50% year to date as of 11/08/2018. The shares currently trade at $38.15 and have been able to report a change of 3.25% over the past one week.

The stock of BRF S.A. and Unum Group 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.

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. The ROI of BRFS is 3.10% while that of UNM is 9.00%. These figures suggest that UNM ventures generate a higher ROI than that of BRFS.

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, BRFS’s free cash flow per share is a negative -1.86, while that of UNM is positive 2.6.

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 BRFS is 2.49 compared to 0.35 for UNM. BRFS can be able to settle its long-term debts and thus is a lower financial risk than UNM.

Valuation

BRFS currently trades at a P/B of 1.87, and a P/S of 0.49 while UNM trades at a forward P/E of 6.96, a P/B of 0.98, and a P/S of 0.72. This means that looking at the earnings, book values and sales basis, BRFS 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 BRFS is currently at a -33.73% to its one-year price target of 8.48. Looking at its rival pricing, UNM is at a -12.38% relative to its price target of 43.54.




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), BRFS is given a 2.30 while 2.70 placed for UNM. This means that analysts are more bullish on the outlook for UNM 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 BRFS is 6.03 while that of UNM is just 2.17. This means that analysts are more bullish on the forecast for UNM stock.

Conclusion

The stock of BRF S.A. defeats that of Unum Group when the two are compared, with BRFS taking 6 out of the total factors that were been considered. BRFS 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, BRFS is the cheaper one on an earnings, book value and sales basis. Finally, the sentiment signal for BRFS is better on when it is viewed on short interest.

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