Beneficial Bancorp, Inc. (NASDAQ:BNCL) and Northfield Bancorp, Inc. (Staten Island, NY) (NASDAQ:NFBK) are the two most active stocks in the Regional – Northeast Banks industry based on today’s 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.
Companies that can consistently grow earnings at a high compound rate usually have the greatest potential to create value for shareholders in the long-run. Analysts expect BNCL to grow earnings at a 10.00% annual rate over the next 5 years. Comparatively, NFBK is expected to grow at a 15.00% annual rate. All else equal, NFBK’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. Beneficial Bancorp, Inc. (BNCL) has an EBITDA margin of 41.34%, compared to an EBITDA margin of 63.66% for Northfield Bancorp, Inc. (Staten Island, NY) (NFBK). This suggests that NFBK underlying business is more profitable. BNCL’s ROI is 13.20% while NFBK has a ROI of 14.30%. The interpretation is that NFBK’s business generates a higher return on investment than BNCL’s.
The amount of free cash flow available to investors is ultimately what determines the value of a stock. BNCL’s free cash flow (“FCF”) per share for the trailing twelve months was +0.23. Comparatively, NFBK’s free cash flow per share was +0.13. On a percent-of-sales basis, BNCL’s free cash flow was 0.01% while NFBK converted 0% of its revenues into cash flow. This means that, for a given level of sales, BNCL 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. BNCL’s debt-to-equity ratio is 0.02 versus a D/E of 0.78 for NFBK. NFBK is therefore the more solvent of the two companies, and has lower financial risk.
BNCL trades at a forward P/E of 27.06, a P/B of 1.01, and a P/S of 6.03, compared to a forward P/E of 22.99, a P/B of 1.13, and a P/S of 6.14 for NFBK. 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”. BNCL is currently priced at a -12.94% to its one-year price target of $17.00. Comparatively, NFBK is -7.97% relative to its price target of $17.31. This suggests that BNCL 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 2.30 for BNCL and 3.00 for NFBK, which implies that analysts are more bullish on the outlook for NFBK.
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. BNCL has a beta of 0.56 and NFBK’s beta is 0.33. NFBK’s shares are therefore the less volatile of the two stocks.
Insider Activity and Investor Sentiment
Short interest, or the percentage of a stock’s tradable shares currently being shorted, is another metric investors use to get a pulse on sentiment. BNCL has a short ratio of 6.05 compared to a short interest of 13.06 for NFBK. This implies that the market is currently less bearish on the outlook for BNCL.
Beneficial Bancorp, Inc. (NASDAQ:BNCL) beats Northfield Bancorp, Inc. (Staten Island, NY) (NASDAQ:NFBK) on a total of 8 of the 13 factors compared between the two stocks. BNCL has higher cash flow per share, has a higher cash conversion rate and has lower financial risk. In terms of valuation, BNCL is the cheaper of the two stocks on book value and sales basis, BNCL is more undervalued relative to its price target. Finally, BNCL has better sentiment signals based on short interest.