Finance

Comparing Service Corporation International (SCI) and ManpowerGroup Inc. (MAN)

Service Corporation International (NYSE:SCI) shares are up more than 23.45% this year and recently increased 1.32% or $0.6 to settle at $46.07. ManpowerGroup Inc. (NYSE:MAN), on the other hand, is down -40.89% year to date as of 12/06/2018. It currently trades at $74.54 and has returned -8.71% during the past week.

Service Corporation International (NYSE:SCI) and ManpowerGroup Inc. (NYSE:MAN) are the two most active stocks based on recent trading volumes. The market is clearly enthusiastic about both these stocks, but which is the better investment? To answer this, we will compare the two companies based on the strength of their growth, profitability, risk, returns, valuation, analyst recommendations, and insider trends.

Growth

The ability to grow earnings at a compound rate over time is a crucial determinant of investment value. Analysts expect SCI to grow earnings at a 12.10% annual rate over the next 5 years. Comparatively, MAN is expected to grow at a 5.95% annual rate. All else equal, SCI’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. EBITDA margin of 3.83% for ManpowerGroup Inc. (MAN). SCI’s ROI is 14.70% while MAN has a ROI of 13.90%. The interpretation is that SCI’s business generates a higher return on investment than MAN’s.

Cash Flow



Earnings don’t always accurately reflect the amount of cash that a company brings in. SCI’s free cash flow (“FCF”) per share for the trailing twelve months was +0.23. Comparatively, MAN’s free cash flow per share was +1.74. On a percent-of-sales basis, SCI’s free cash flow was 1.35% while MAN converted 0.51% of its revenues into cash flow. This means that, for a given level of sales, SCI is able to generate more free cash flow for investors.

Liquidity and Financial Risk

Balance sheet risk is one of the biggest factors to consider before investing. SCI has a current ratio of 0.50 compared to 1.50 for MAN. This means that MAN can more easily cover its most immediate liabilities over the next twelve months. SCI’s debt-to-equity ratio is 2.43 versus a D/E of 0.40 for MAN. SCI is therefore the more solvent of the two companies, and has lower financial risk.

Valuation

SCI trades at a forward P/E of 23.13, a P/B of 5.60, and a P/S of 2.60, compared to a forward P/E of 8.99, a P/B of 1.76, and a P/S of 0.22 for MAN. SCI is the expensive of the two stocks on an earnings, book value and sales basis. 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. SCI is currently priced at a -5.98% to its one-year price target of 49.00. Comparatively, MAN is -17.64% relative to its price target of 90.50. This suggests that MAN is the better investment over the next year.

Risk and Volatility

To gauge the market risk of a particular stock, investors use beta. Stocks with a beta above 1 are more volatile than the market as a whole. Conversely, a beta below 1 implies below average systematic risk. SCI has a beta of 1.06 and MAN’s beta is 1.19. SCI’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. SCI has a short ratio of 8.39 compared to a short interest of 1.83 for MAN. This implies that the market is currently less bearish on the outlook for MAN.

Summary

ManpowerGroup Inc. (NYSE:MAN) beats Service Corporation International (NYSE:SCI) on a total of 9 of the 14 factors compared between the two stocks. MAN is growing fastly, has higher cash flow per share, higher liquidity and has lower financial risk. In terms of valuation, MAN is the cheaper of the two stocks on an earnings, book value and sales basis, MAN is more undervalued relative to its price target. Finally, MAN has better sentiment signals based on short interest.

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