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CIT Group Inc. (CIT) vs. WellCare Health Plans, Inc. (WCG): Breaking Down the Two Hottest Stocks

CIT Group Inc. (NYSE:CIT) shares are down more than -9.04% this year and recently decreased -4.82% or -$2.27 to settle at $44.78. WellCare Health Plans, Inc. (NYSE:WCG), on the other hand, is up 25.43% year to date as of 12/04/2018. It currently trades at $252.26 and has returned 3.78% during the past week.

CIT Group Inc. (NYSE:CIT) and WellCare Health Plans, Inc. (NYSE:WCG) are the two most active stocks based on recent 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 CIT to grow earnings at a 10.00% annual rate over the next 5 years. Comparatively, WCG is expected to grow at a 21.97% annual rate. All else equal, WCG’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 4.49% for WellCare Health Plans, Inc. (WCG). CIT’s ROI is 8.60% while WCG has a ROI of 8.30%. The interpretation is that CIT’s business generates a higher return on investment than WCG’s.

Cash Flow



Earnings don’t always accurately reflect the amount of cash that a company brings in. CIT’s free cash flow (“FCF”) per share for the trailing twelve months was -0.03. Comparatively, WCG’s free cash flow per share was -12.68. On a percent-of-sales basis, CIT’s free cash flow was -0.1% while WCG converted -3.73% of its revenues into cash flow. This means that, for a given level of sales, CIT is able to generate more free cash flow for investors.

Financial Risk

CIT’s debt-to-equity ratio is 0.00 versus a D/E of 0.00 for WCG. CIT is therefore the more solvent of the two companies, and has lower financial risk.

Valuation

CIT trades at a forward P/E of 9.38, a P/B of 0.84, and a P/S of 2.55, compared to a forward P/E of 18.75, a P/B of 2.89, and a P/S of 0.66 for WCG. 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. CIT is currently priced at a -19.26% to its one-year price target of 55.46. Comparatively, WCG is -24.61% relative to its price target of 334.60. This suggests that WCG 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. CIT has a beta of 1.28 and WCG’s beta is 1.19. WCG’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. CIT has a short ratio of 4.61 compared to a short interest of 1.74 for WCG. This implies that the market is currently less bearish on the outlook for WCG.

Summary




WellCare Health Plans, Inc. (NYSE:WCG) beats CIT Group Inc. (NYSE:CIT) on a total of 7 of the 14 factors compared between the two stocks. WCG is more profitable and has lower financial risk. WCG is more undervalued relative to its price target. Finally, WCG has better sentiment signals based on short interest.

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