GGP Inc. (NYSE:GGP) and CBL & Associates Properties, Inc. (NYSE:CBL) are the two most active stocks in the REIT – Retail 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.
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 GGP to grow earnings at a 5.70% annual rate over the next 5 years. Comparatively, CBL is expected to grow at a 4.90% annual rate. All else equal, GGP’s higher growth rate would imply a greater potential for capital appreciation.
Profitability and Returns
A high growth rate isn’t necessarily valuable to investors. In fact, companies that overinvest in low return projects just to achieve a high growth rate can actually destroy shareholder value. Profitability and returns are a measure of the quality of a company’s business and its growth opportunities. We’ll use EBITDA margin and Return on Investment (ROI) to measure this. GGP Inc. (GGP) has an EBITDA margin of 95.83%, compared to an EBITDA margin of 72.9% for CBL & Associates Properties, Inc. (CBL). This suggests that GGP underlying business is more profitable. GGP’s ROI is 3.80% while CBL has a ROI of 4.50%. The interpretation is that CBL’s business generates a higher return on investment than GGP’s.
Earnings don’t always accurately reflect the amount of cash that a company brings in. GGP’s free cash flow (“FCF”) per share for the trailing twelve months was +0.14. Comparatively, CBL’s free cash flow per share was +0.57. On a percent-of-sales basis, GGP’s free cash flow was 5.26% 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
Analysts look at liquidity and leverage ratios to assess how easily a company can cover its liabilities. GGP’s debt-to-equity ratio is 1.55 versus a D/E of 3.56 for CBL. CBL is therefore the more solvent of the two companies, and has lower financial risk.
GGP trades at a forward P/E of 37.07, a P/B of 2.32, and a P/S of 8.51, compared to a forward P/E of 22.89, a P/B of 1.23, and a P/S of 1.57 for CBL. GGP 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
Investors often compare a stock’s current price to an analyst price target to get a sense of the potential upside within the next year. GGP is currently priced at a -14.46% to its one-year price target of $25.18. Comparatively, CBL is -3.71% relative to its price target of $8.89. This suggests that GGP 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 GGP and 2.90 for CBL, which implies that analysts are more bullish on the outlook for CBL.
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. GGP has a beta of 0.79 and CBL’s beta is 1.22. GGP’s shares are therefore the less volatile of the two stocks.
Insider Activity and Investor Sentiment
Comparing the number of shares sold short to the float is a method analysts often use to get a reading on investor sentiment. GGP has a short ratio of 10.64 compared to a short interest of 12.07 for CBL. This implies that the market is currently less bearish on the outlook for GGP.
GGP Inc. (NYSE:GGP) beats CBL & Associates Properties, Inc. (NYSE:CBL) on a total of 7 of the 13 factors compared between the two stocks. GGP is growing fastly, is more profitable and has lower financial risk. GGP is more undervalued relative to its price target. Finally, GGP has better sentiment signals based on short interest.