OFG Bancorp (NYSE:OFG) and Renasant Corporation (NASDAQ:RNST) are the two most active stocks in the Money Center Banks industry based on today’s trading volumes. Investors are clearly interested in the two names, but is one a better choice than the other? We will compare the two companies across growth, profitability, risk, valuation, and insider trends to answer this question.
The ability to consistently grow earnings at a high compound rate is a defining characteristic of the best companies for long-term investment. Analysts expect OFG to grow earnings at a 8.00% annual rate over the next 5 years. Comparatively, RNST is expected to grow at a 10.00% annual rate. All else equal, RNST’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. OFG Bancorp (OFG) has an EBITDA margin of 50.25%, compared to an EBITDA margin of 42.73% for Renasant Corporation (RNST). This suggests that OFG underlying business is more profitable. OFG’s ROI is 19.20% while RNST has a ROI of 17.40%. The interpretation is that OFG’s business generates a higher return on investment than RNST’s.
Cash is king when it comes to investing. OFG’s free cash flow (“FCF”) per share for the trailing twelve months was -0.10. Comparatively, RNST’s free cash flow per share was -0.03. On a percent-of-sales basis, OFG’s free cash flow was -0% while RNST converted -0% of its revenues into cash flow. This means that, for a given level of sales, OFG 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. OFG’s debt-to-equity ratio is 0.05 versus a D/E of 0.15 for RNST. RNST is therefore the more solvent of the two companies, and has lower financial risk.
OFG trades at a forward P/E of 8.19, a P/B of 0.62, and a P/S of 1.18, compared to a forward P/E of 15.00, a P/B of 1.41, and a P/S of 5.37 for RNST. OFG is the cheaper 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. OFG is currently priced at a -25.6% to its one-year price target of $12.50. Comparatively, RNST is -8.99% relative to its price target of $44.38. This suggests that OFG 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 2.50 for OFG and 2.90 for RNST, which implies that analysts are more bullish on the outlook for RNST.
Risk and Volatility
Beta is an important measure that gives investors a sense of the market risk associated with a particular stock. A beta above 1 signals above average market risk, while a beta below 1 implies below average volatility. OFG has a beta of 1.50 and RNST’s beta is 1.07. RNST’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. OFG has a short ratio of 16.06 compared to a short interest of 12.11 for RNST. This implies that the market is currently less bearish on the outlook for RNST.
OFG Bancorp (NYSE:OFG) beats Renasant Corporation (NASDAQ:RNST) on a total of 8 of the 13 factors compared between the two stocks. OFG is more profitable, generates a higher return on investment and has lower financial risk. In terms of valuation, OFG is the cheaper of the two stocks on an earnings, book value and sales basis, OFG is more undervalued relative to its price target. Finally, BRSS has better sentiment signals based on short interest.