US Foods Holding Corp. (NYSE:USFD) shares are up more than 9.83% this year and recently decreased -0.17% or -$0.05 to settle at $30.13. The Hain Celestial Group, Inc. (NASDAQ:HAIN), on the other hand, is up 6.12% year to date as of 12/05/2017. It currently trades at $42.01 and has returned -0.74% during the past week.
US Foods Holding Corp. (NYSE:USFD) and The Hain Celestial Group, Inc. (NASDAQ:HAIN) are the two most active stocks in the Food Wholesale 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.
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 USFD to grow earnings at a 18.20% annual rate over the next 5 years. Comparatively, HAIN is expected to grow at a 12.63% annual rate. All else equal, USFD’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., compared to an EBITDA margin of 5.11% for The Hain Celestial Group, Inc. (HAIN). USFD’s ROI is 6.80% while HAIN has a ROI of 3.60%. The interpretation is that USFD’s business generates a higher return on investment than HAIN’s.
The amount of free cash flow available to investors is ultimately what determines the value of a stock. USFD’s free cash flow (“FCF”) per share for the trailing twelve months was +0.37. Comparatively, HAIN’s free cash flow per share was -0.33. On a percent-of-sales basis, USFD’s free cash flow was 0.36% while HAIN converted -1.2% of its revenues into cash flow. This means that, for a given level of sales, USFD 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. USFD has a current ratio of 1.40 compared to 2.50 for HAIN. This means that HAIN can more easily cover its most immediate liabilities over the next twelve months. USFD’s debt-to-equity ratio is 1.41 versus a D/E of 0.43 for HAIN. USFD is therefore the more solvent of the two companies, and has lower financial risk.
USFD trades at a forward P/E of 17.82, a P/B of 2.46, and a P/S of 0.28, compared to a forward P/E of 21.81, a P/B of 2.43, and a P/S of 1.52 for HAIN. 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 isn’t a good investment if the stock is priced accurately. To get a sense of “value” we must compare the current price to some measure of intrinsic value such as a price target. USFD is currently priced at a -2.55% to its one-year price target of 30.92. Comparatively, HAIN is -0.12% relative to its price target of 42.06. This suggests that USFD 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 2.10 for USFD and 2.50 for HAIN, which implies that analysts are more bullish on the outlook for HAIN.
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. USFD has a short ratio of 1.45 compared to a short interest of 4.21 for HAIN. This implies that the market is currently less bearish on the outlook for USFD.
US Foods Holding Corp. (NYSE:USFD) beats The Hain Celestial Group, Inc. (NASDAQ:HAIN) on a total of 11 of the 14 factors compared between the two stocks. USFD is growing fastly, is more profitable, generates a higher return on investment, has higher cash flow per share and has a higher cash conversion rate. In terms of valuation, USFD is the cheaper of the two stocks on an earnings and sales basis, USFD is more undervalued relative to its price target. Finally, USFD has better sentiment signals based on short interest.