Kimco Realty Corporation (NYSE:KIM) and Cedar Realty Trust, Inc. (NYSE:CDR) 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.
The ability to consistently grow earnings at a high compound rate is a defining characteristic of the best companies for long-term investment. Analysts expect KIM to grow earnings at a 5.53% annual rate over the next 5 years. Comparatively, CDR is expected to grow at a 11.00% annual rate. All else equal, CDR’s higher growth rate would imply a greater 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. Kimco Realty Corporation (KIM) has an EBITDA margin of 55.01%, compared to an EBITDA margin of 51.32% for Cedar Realty Trust, Inc. (CDR). This suggests that KIM underlying business is more profitable. KIM’s ROI is 1.80% while CDR has a ROI of 3.50%. The interpretation is that CDR’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, CDR’s free cash flow per share was +0.07. On a percent-of-sales basis, KIM’s free cash flow was -6.91% while CDR converted 0% of its revenues into cash flow. This means that, for a given level of sales, CDR is able to generate more free cash flow for investors.
Liquidity and Financial Risk
Liquidity and leverage ratios are important because they reveal the financial health of a company. KIM’s debt-to-equity ratio is 1.03 versus a D/E of 1.62 for CDR. CDR is therefore the more solvent of the two companies, and has lower financial risk.
KIM trades at a forward P/E of 33.90, a P/B of 1.56, and a P/S of 6.98, compared to a forward P/E of 52.27, a P/B of 1.23, and a P/S of 3.45 for CDR. KIM 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. KIM is currently priced at a -15.62% to its one-year price target of $22.86. Comparatively, CDR is 3.05% relative to its price target of $5.58. 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 2.60 for CDR, which implies that analysts are more bullish on the outlook for CDR.
Risk and Volatility
Beta is an important measure that gives investors a sense of the market risk associated with a particular stock. A beta above 1 signals above average market risk, while a beta below 1 implies below average volatility. KIM has a beta of 0.68 and CDR’s beta is 0.92. KIM’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. KIM has a short ratio of 5.20 compared to a short interest of 5.35 for CDR. This implies that the market is currently less bearish on the outlook for KIM.
Kimco Realty Corporation (NYSE:KIM) beats Cedar Realty Trust, Inc. (NYSE:CDR) on a total of 7 of the 13 factors compared between the two stocks. KIM is more profitable and has lower financial risk. KIM is more undervalued relative to its price target. Finally, KIM has better sentiment signals based on short interest.