Kimco Realty Corporation (NYSE:KIM) and CBL & Associates Properties, Inc. (NYSE:CBL) are the two most active stocks in the REIT – Retail industry based on today’s trading volumes. We will compare the two companies based on the strength of various metrics, including growth, profitability, risk, return, and valuation to determine if one is a better investment than the other.
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 KIM to grow earnings at a 5.53% annual rate over the next 5 years. Comparatively, CBL is expected to grow at a 4.90% annual rate. All else equal, KIM’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. Kimco Realty Corporation (KIM) has an EBITDA margin of 55.01%, compared to an EBITDA margin of 72.9% for CBL & Associates Properties, Inc. (CBL). This suggests that CBL underlying business is more profitable. KIM’s ROI is 1.80% while CBL has a ROI of 4.50%. The interpretation is that CBL’s business generates a higher return on investment than KIM’s.
The value of a stock is simply the present value of its future free cash flows. KIM’s free cash flow (“FCF”) per share for the trailing twelve months was -0.19. Comparatively, CBL’s free cash flow per share was +0.57. On a percent-of-sales basis, KIM’s free cash flow was -6.91% while CBL converted 9.48% of its revenues into cash flow. This means that, for a given level of sales, CBL is able to generate more free cash flow for investors.
Liquidity and Financial Risk
Liquidity and leverage ratios provide insight into the financial health of a company, and allow investors to determine the likelihood that the company will be able to continue operating as a going concern. KIM’s debt-to-equity ratio is 1.03 versus a D/E of 3.56 for CBL. CBL is therefore the more solvent of the two companies, and has lower financial risk.
KIM trades at a forward P/E of 33.66, a P/B of 1.58, and a P/S of 7.06, compared to a forward P/E of 22.23, a P/B of 1.17, and a P/S of 1.43 for CBL. KIM 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
A cheap stock is not necessarily a value stock. Most of the time, a stock is cheap for good reason. A stock only has value if the current price is substantially below the price at which it should trade in the future. KIM is currently priced at a -14.85% to its one-year price target of $22.89. Comparatively, CBL is -7.99% relative to its price target of $8.89. This suggests that KIM 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 KIM and 2.90 for CBL, which implies that analysts are more bullish on the outlook for CBL.
Risk and Volatility
Beta is a metric that investors frequently use to analyze a stock’s systematic risk. A beta above 1 implies above average market volatility. Conversely, a stock with a beta below 1 is seen as less risky than the overall market. KIM has a beta of 0.68 and CBL’s beta is 1.21. KIM’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. KIM has a short ratio of 4.58 compared to a short interest of 12.16 for CBL. This implies that the market is currently less bearish on the outlook for KIM.
CBL & Associates Properties, Inc. (NYSE:CBL) beats Kimco Realty Corporation (NYSE:KIM) on a total of 7 of the 13 factors compared between the two stocks. CBL is growing fastly, generates a higher return on investment, has higher cash flow per share and has a higher cash conversion rate. In terms of valuation, CBL is the cheaper of the two stocks on an earnings, book value and sales basis, Finally, BRX has better sentiment signals based on short interest.