Global

Dissecting the Numbers for Regions Financial Corporation (RF) and Total System Services, Inc. (TSS)

Regions Financial Corporation (NYSE:RF) shares are down more than -9.78% this year and recently decreased -6.25% or -$1.04 to settle at $15.59. Total System Services, Inc. (NYSE:TSS), on the other hand, is up 8.60% year to date as of 12/04/2018. It currently trades at $85.89 and has returned 1.93% during the past week.

Regions Financial Corporation (NYSE:RF) and Total System Services, Inc. (NYSE:TSS) are the two most active stocks based on recent trading volumes. We will compare the two companies based on the strength of various metrics, including growth, profitability, risk, return, and valuation to determine if one is a better investment than the other.

Growth

Companies that can increase earnings at a high compound rate over time are attractive to investors. Analysts expect RF to grow earnings at a 9.00% annual rate over the next 5 years. Comparatively, TSS is expected to grow at a 15.95% annual rate. All else equal, TSS’s higher growth rate would imply a greater potential for capital appreciation.

Profitability and Returns

Growth isn’t very attractive to investors if companies are sacrificing profitability and shareholder returns to achieve that growth. We will use EBITDA margin and Return on Investment (ROI), which control for differences in capital structure between the two companies, to measure profitability and return., compared to an EBITDA margin of 24.67% for Total System Services, Inc. (TSS). RF’s ROI is 14.60% while TSS has a ROI of 9.80%. The interpretation is that RF’s business generates a higher return on investment than TSS’s.

Cash Flow



Cash is king when it comes to investing. RF’s free cash flow (“FCF”) per share for the trailing twelve months was +0.17. Comparatively, TSS’s free cash flow per share was +1.25. On a percent-of-sales basis, RF’s free cash flow was 2.89% while TSS converted 4.63% of its revenues into cash flow. This means that, for a given level of sales, TSS is able to generate more free cash flow for investors.

Liquidity and Financial Risk

RF’s debt-to-equity ratio is 0.39 versus a D/E of 1.48 for TSS. TSS is therefore the more solvent of the two companies, and has lower financial risk.

Valuation

RF trades at a forward P/E of 9.82, a P/B of 1.21, and a P/S of 3.98, compared to a forward P/E of 17.48, a P/B of 5.93, and a P/S of 3.65 for TSS. 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 isn’t a good investment if the stock is priced accurately. To get a sense of “value” we must compare the current price to some measure of intrinsic value such as a price target. RF is currently priced at a -20.46% to its one-year price target of 19.60. Comparatively, TSS is -19.73% relative to its price target of 107.00. This suggests that RF is the better investment over the next year.

Risk and Volatility

No discussion on value is complete without taking into account risk. Analysts use a stock’s beta, which measures the volatility of a stock compared to the overall market, to measure systematic risk. A stock with a beta above 1 is more volatile than the market. Conversely, a beta below 1 implies a below average level of risk. RF has a beta of 1.31 and TSS’s beta is 1.22. TSS’s shares are therefore the less volatile of the two stocks.

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. RF has a short ratio of 1.40 compared to a short interest of 2.96 for TSS. This implies that the market is currently less bearish on the outlook for RF.

Summary




Total System Services, Inc. (NYSE:TSS) beats Regions Financial Corporation (NYSE:RF) on a total of 7 of the 14 factors compared between the two stocks. TSS is more profitable, has higher cash flow per share, has a higher cash conversion rate and higher liquidity. Finally, SYK has better sentiment signals based on short interest.

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