Boston Private Financial Holdings, Inc. (NASDAQ:BPFH) and Oritani Financial Corp. (NASDAQ:ORIT) are the two most active stocks in the Regional – Northeast Banks industry based on today’s 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.
One of the key things investors look for in a company is the ability to grow earnings at a high compound rate over time. Analysts expect BPFH to grow earnings at a 6.10% annual rate over the next 5 years. Comparatively, ORIT is expected to grow at a 12.00% annual rate. All else equal, ORIT’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. Boston Private Financial Holdings, Inc. (BPFH) has an EBITDA margin of 42.4%, compared to an EBITDA margin of 92.6% for Oritani Financial Corp. (ORIT). This suggests that ORIT underlying business is more profitable. BPFH’s ROI is 21.40% while ORIT has a ROI of 14.00%. The interpretation is that BPFH’s business generates a higher return on investment than ORIT’s.
Cash is king when it comes to investing. BPFH’s free cash flow (“FCF”) per share for the trailing twelve months was +0.20. Comparatively, ORIT’s free cash flow per share was -. On a percent-of-sales basis, BPFH’s free cash flow was 0% while ORIT converted 0% of its revenues into cash flow. This means that, for a given level of sales, BPFH is able to generate more free cash flow for investors.
Liquidity and Financial Risk
Liquidity and leverage ratios are important because they reveal the financial health of a company. BPFH’s debt-to-equity ratio is 0.14 versus a D/E of 0.00 for ORIT. BPFH is therefore the more solvent of the two companies, and has lower financial risk.
BPFH trades at a forward P/E of 15.31, a P/B of 1.64, and a P/S of 5.23, compared to a forward P/E of 15.16, a P/B of 1.19, and a P/S of 5.22 for ORIT. BPFH 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
When investing it’s crucial to distinguish between price and value. As Warren Buffet said, “price is what you pay, value is what you get”. BPFH is currently priced at a -9.48% to its one-year price target of $16.46. Comparatively, ORIT is -7.08% relative to its price target of $17.38. This suggests that BPFH is the better investment over the next year.
The average investment recommendation on a scale of 1 to 5 (1 being a strong buy, 3 a hold, and 5 a sell) is 3.00 for BPFH and 3.00 for ORIT, which implies that analysts are equally bullish on their outlook for the two stocks.
Risk and Volatility
Analyst use beta to measure a stock’s volatility relative to the overall market. Stocks with a beta above 1 tend to have bigger swings in price than the market as a whole, the opposite being the case for stocks with a beta below 1. BPFH has a beta of 1.06 and ORIT’s beta is 0.33. ORIT’s shares are therefore the less volatile of the two stocks.
Insider Activity and Investor Sentiment
Analysts often look at short interest, or the percentage of a company’s float currently being shorted by investors, to aid in their outlook for a particular stock. BPFH has a short ratio of 4.14 compared to a short interest of 12.36 for ORIT. This implies that the market is currently less bearish on the outlook for BPFH.
Oritani Financial Corp. (NASDAQ:ORIT) beats Boston Private Financial Holdings, Inc. (NASDAQ:BPFH) on a total of 7 of the 13 factors compared between the two stocks. ORIT generates a higher return on investment, is more profitable and has lower financial risk. In terms of valuation, ORIT is the cheaper of the two stocks on an earnings, book value and sales basis, Finally, OSBC has better sentiment signals based on short interest.