FCB Financial Holdings, Inc. (NYSE:FCB) and Capital Bank Financial Corp. (NASDAQ:CBF) are the two most active stocks in the Regional – Southeast 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.
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 FCB to grow earnings at a 15.41% annual rate over the next 5 years. Comparatively, CBF is expected to grow at a 10.00% annual rate. All else equal, FCB’s higher growth rate would imply a greater potential for capital appreciation.
Profitability and Returns
Growth doesn’t mean much if it comes at the cost of weak profitability. To adjust for differences in capital structure we’ll use EBITDA margin and Return on Investment (ROI) as measures of profitability and return. FCB Financial Holdings, Inc. (FCB) has an EBITDA margin of 76.75%, compared to an EBITDA margin of 49.37% for Capital Bank Financial Corp. (CBF). This suggests that FCB underlying business is more profitable. FCB’s ROI is 20.80% while CBF has a ROI of 17.00%. The interpretation is that FCB’s business generates a higher return on investment than CBF’s.
Earnings don’t always accurately reflect the amount of cash that a company brings in. FCB’s free cash flow (“FCF”) per share for the trailing twelve months was +0.95. Comparatively, CBF’s free cash flow per share was -. On a percent-of-sales basis, FCB’s free cash flow was 0.01% while CBF converted 0% of its revenues into cash flow. This means that, for a given level of sales, FCB 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. FCB’s debt-to-equity ratio is 0.00 versus a D/E of 0.09 for CBF. CBF is therefore the more solvent of the two companies, and has lower financial risk.
FCB trades at a forward P/E of 13.93, a P/B of 1.71, and a P/S of 5.76, compared to a forward P/E of 17.29, a P/B of 1.47, and a P/S of 5.70 for CBF. FCB is the cheaper of the two stocks on an earnings basis but is expensive in terms of P/B and P/S ratio. 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. FCB is currently priced at a -15.74% to its one-year price target of $53.29. Comparatively, CBF is -12.15% relative to its price target of $43.20. This suggests that FCB 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 FCB and 3.00 for CBF, which implies that analysts are more bullish on the outlook for CBF.
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. CBF’s beta is 0.45.
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. FCB has a short ratio of 4.48 compared to a short interest of 0.86 for CBF. This implies that the market is currently less bearish on the outlook for CBF.
FCB Financial Holdings, Inc. (NYSE:FCB) beats Capital Bank Financial Corp. (NASDAQ:CBF) on a total of 9 of the 12 factors compared between the two stocks. FCB is growing fastly, 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. FCB is more undervalued relative to its price target. Finally, HAFC has better sentiment signals based on short interest.