Brixmor Property Group Inc. (NYSE:BRX) and DDR Corp. (NYSE:DDR) are the two most active stocks in the REIT – Retail 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.
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 BRX to grow earnings at a 13.14% annual rate over the next 5 years. Comparatively, DDR is expected to grow at a -2.75% annual rate. All else equal, BRX’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 which adjust for differences in capital structure, as measure of profitability. Brixmor Property Group Inc. (BRX) has an EBITDA margin of 69.14%, compared to an EBITDA margin of 41.86% for DDR Corp. (DDR). This suggests that BRX underlying business is more profitable.
Cash is king when it comes to investing. BRX’s free cash flow (“FCF”) per share for the trailing twelve months was +0.19. Comparatively, DDR’s free cash flow per share was +0.05. On a percent-of-sales basis, BRX’s free cash flow was 4.55% while DDR converted 1.82% of its revenues into cash flow. This means that, for a given level of sales, BRX 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. BRX’s debt-to-equity ratio is 2.00 versus a D/E of 1.68 for DDR. BRX is therefore the more solvent of the two companies, and has lower financial risk.
BRX trades at a forward P/E of 21.92, a P/B of 1.96, and a P/S of 4.46, compared to a forward P/E of 3050.00, a P/B of 1.23, and a P/S of 3.49 for DDR. BRX 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. BRX is currently priced at a -15.84% to its one-year price target of $22.29. Comparatively, DDR is -18.38% relative to its price target of $11.21. This suggests that DDR 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 2.40 for BRX and 2.80 for DDR, which implies that analysts are more bullish on the outlook for DDR.
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. BRX has a beta of 0.56 and DDR’s beta is 0.83. BRX’s shares are therefore the less volatile of the two stocks.
Insider Activity and Investor Sentiment
The analysis of insider buying and selling trends can be extended to the aggregate level. Short interest, which represents the percentage of a stock’s tradable shares currently being shorted, captures what the market as a whole feels about a stock. BRX has a short ratio of 1.33 compared to a short interest of 1.96 for DDR. This implies that the market is currently less bearish on the outlook for BRX.
Brixmor Property Group Inc. (NYSE:BRX) beats DDR Corp. (NYSE:DDR) on a total of 8 of the 12 factors compared between the two stocks. BRX is growing fastly, is more profitable, has higher cash flow per share and has a higher cash conversion rate. Finally, BRX has better sentiment signals based on short interest.