Macerich Company (NYSE:MAC) shares are down more than -22.47% this year and recently increased 2.72% or $1.35 to settle at $50.92. PacWest Bancorp (NASDAQ:PACW), on the other hand, is down -25.65% year to date as of 12/06/2018. It currently trades at $37.47 and has returned -6.18% during the past week.
Macerich Company (NYSE:MAC) and PacWest Bancorp (NASDAQ:PACW) 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 MAC to grow earnings at a 0.21% annual rate over the next 5 years. Comparatively, PACW is expected to grow at a 10.00% annual rate. All else equal, PACW’s higher growth rate would imply a greater potential for capital appreciation.Profitability and Returns
Just, if not more, important than the growth rate is the quality of that growth. Growth can actual be harmful to investors if it comes at the cost of weak profitability and low returns. To adjust for differences in capital structure we’ll use EBITDA margin and Return on Investment (ROI) as measures of profitability and return., compared to an EBITDA margin of 67.95% for PacWest Bancorp (PACW). MAC’s ROI is 0.70% while PACW has a ROI of 13.30%. The interpretation is that PACW’s business generates a higher return on investment than MAC’s.Cash Flow
If there’s one thing investors care more about than earnings, it’s cash flow. MAC’s free cash flow (“FCF”) per share for the trailing twelve months was +0.15. Comparatively, PACW’s free cash flow per share was +0.61. On a percent-of-sales basis, MAC’s free cash flow was 0% while PACW converted 6.29% of its revenues into cash flow. This means that, for a given level of sales, PACW is able to generate more free cash flow for investors.Financial Risk
MAC’s debt-to-equity ratio is 1.73 versus a D/E of 0.10 for PACW. MAC is therefore the more solvent of the two companies, and has lower financial risk.
MAC trades at a forward P/E of 65.20, a P/B of 2.36, and a P/S of 7.37, compared to a forward P/E of 9.79, a P/B of 0.96, and a P/S of 4.00 for PACW. MAC 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
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. MAC is currently priced at a -13.74% to its one-year price target of 59.03. Comparatively, PACW is -28.74% relative to its price target of 52.58. This suggests that PACW 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. MAC has a beta of 0.81 and PACW’s beta is 1.40. MAC’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. MAC has a short ratio of 10.53 compared to a short interest of 3.61 for PACW. This implies that the market is currently less bearish on the outlook for PACW.Summary
PacWest Bancorp (NASDAQ:PACW) beats Macerich Company (NYSE:MAC) on a total of 12 of the 14 factors compared between the two stocks. PACW higher liquidity, is more profitable, generates a higher return on investment, has higher cash flow per share, has a higher cash conversion rate and has lower financial risk. In terms of valuation, PACW is the cheaper of the two stocks on an earnings, book value and sales basis, PACW is more undervalued relative to its price target. Finally, PACW has better sentiment signals based on short interest.