Northfield Bancorp, Inc. (Staten Island, NY) (NASDAQ:NFBK) shares are down more than -13.32% this year and recently decreased -0.12% or -$0.02 to settle at $17.31. Lakeland Bancorp, Inc. (NASDAQ:LBAI), on the other hand, is up 3.33% year to date as of 11/23/2017. It currently trades at $20.15 and has returned 1.77% during the past week.
Northfield Bancorp, Inc. (Staten Island, NY) (NASDAQ:NFBK) and Lakeland Bancorp, Inc. (NASDAQ:LBAI) are the two most active stocks in the Regional – Northeast 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 NFBK to grow earnings at a 10.00% annual rate over the next 5 years. Comparatively, LBAI is expected to grow at a 9.00% annual rate. All else equal, NFBK’s higher growth rate would imply a greater potential for capital appreciation.
Profitability and Returns
Growth doesn’t mean much if it comes at the cost of weak profitability. To adjust for differences in capital structure we’ll use EBITDA margin and Return on Investment (ROI) as measures of profitability and return. , compared to an EBITDA margin of 58.46% for Lakeland Bancorp, Inc. (LBAI). NFBK’s ROI is 14.30% while LBAI has a ROI of 13.10%. The interpretation is that NFBK’s business generates a higher return on investment than LBAI’s.
The value of a stock is simply the present value of its future free cash flows. NFBK’s free cash flow (“FCF”) per share for the trailing twelve months was +0.21. Comparatively, LBAI’s free cash flow per share was +0.20. On a percent-of-sales basis, NFBK’s free cash flow was 0.01% while LBAI converted 0.01% of its revenues into cash flow. This means that, for a given level of sales, NFBK is able to generate more free cash flow for investors.
NFBK’s debt-to-equity ratio is 0.78 versus a D/E of 0.52 for LBAI. NFBK is therefore the more solvent of the two companies, and has lower financial risk.
NFBK trades at a forward P/E of 24.80, a P/B of 1.23, and a P/S of 6.47, compared to a forward P/E of 16.28, a P/B of 1.66, and a P/S of 5.16 for LBAI. NFBK is the cheaper of the two stocks on book value basis but is expensive in terms of P/E 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
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. NFBK is currently priced at a -0.52% to its one-year price target of 17.40. Comparatively, LBAI is -6.28% relative to its price target of 21.50. This suggests that LBAI 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 3.00 for NFBK and 2.40 for LBAI, which implies that analysts are more bullish on the outlook for NFBK.
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. NFBK has a beta of 0.31 and LBAI’s beta is 0.77. NFBK’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. NFBK has a short ratio of 11.38 compared to a short interest of 7.17 for LBAI. This implies that the market is currently less bearish on the outlook for LBAI.
Northfield Bancorp, Inc. (Staten Island, NY) (NASDAQ:NFBK) beats Lakeland Bancorp, Inc. (NASDAQ:LBAI) on a total of 7 of the 14 factors compared between the two stocks. NFBK is growing fastly, is more profitable, generates a higher return on investment, has higher cash flow per share and higher liquidity. Finally, BWFG has better sentiment signals based on short interest.