Seacoast Banking Corporation of Florida (NASDAQ:SBCF) and Banner Corporation (NASDAQ:BANR) are the two most active stocks in the Regional – Mid-Atlantic 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 increase earnings at a high compound rate over time are attractive to investors. Analysts expect SBCF to grow earnings at a 9.00% annual rate over the next 5 years. Comparatively, BANR is expected to grow at a 9.00% annual rate. All else equal, All else equal, the two stocks’ identical expected growth rates would imply a similar 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. Seacoast Banking Corporation of Florida (SBCF) has an EBITDA margin of 34.87%, compared to an EBITDA margin of 92.1% for Banner Corporation (BANR). This suggests that BANR underlying business is more profitable. SBCF’s ROI is 24.20% while BANR has a ROI of 23.20%. The interpretation is that SBCF’s business generates a higher return on investment than BANR’s.
If there’s one thing investors care more about than earnings, it’s cash flow. SBCF’s free cash flow (“FCF”) per share for the trailing twelve months was +0.26. Comparatively, BANR’s free cash flow per share was +0.82. On a percent-of-sales basis, SBCF’s free cash flow was 0.01% while BANR converted 0.01% of its revenues into cash flow. This means that, for a given level of sales, SBCF is able to generate more free cash flow for investors.
Liquidity and Financial Risk
Liquidity and leverage ratios measure a company’s ability to meet short-term obligations and longer-term debts. SBCF’s debt-to-equity ratio is 0.12 versus a D/E of 0.07 for BANR. SBCF is therefore the more solvent of the two companies, and has lower financial risk.
SBCF trades at a forward P/E of 14.03, a P/B of 1.71, and a P/S of 6.11, compared to a forward P/E of 16.88, a P/B of 1.41, and a P/S of 4.66 for BANR. SBCF 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. SBCF is currently priced at a -11.83% to its one-year price target of $26.13. Comparatively, BANR is -10.5% relative to its price target of $62.50. This suggests that SBCF 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 2.10 for SBCF and 2.20 for BANR, which implies that analysts are more bullish on the outlook for BANR.
Risk and Volatility
No discussion on value is complete without taking into account risk. Analysts use a stock’s beta, which measures the volatility of a stock compared to the overall market, to measure systematic risk. A stock with a beta above 1 is more volatile than the market. Conversely, a beta below 1 implies a below average level of risk. SBCF has a beta of 0.79 and BANR’s beta is 1.05. SBCF’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. SBCF has a short ratio of 3.40 compared to a short interest of 3.79 for BANR. This implies that the market is currently less bearish on the outlook for SBCF.
Seacoast Banking Corporation of Florida (NASDAQ:SBCF) beats Banner Corporation (NASDAQ:BANR) on a total of 6 of the 13 factors compared between the two stocks. SBCF generates a higher return on investment. SBCF is more undervalued relative to its price target. Finally, SBCF has better sentiment signals based on short interest.