Earnings

Set Sail With KeyCorp (KEY), The Coca-Cola Company (KO)

The shares of KeyCorp have decreased by more than -4.61% this year alone. The shares recently went down by -3.07% or -$0.61 and now trades at $19.24. The shares of The Coca-Cola Company (NYSE:KO), has slumped by -2.99% year to date as of 04/13/2018. The shares currently trade at $44.51 and have been able to report a change of 1.34% over the past one week.

The stock of KeyCorp and The Coca-Cola Company were two of the most active stocks on Friday. Investors seem to be very interested in what happens to the stocks of these two companies but do investors favor one over the other? We will analyze the growth, profitability, risk, valuation, and insider trends of both companies and see which one investors prefer.

Next 5Y EPS Growth: 9.50% versus 7.66%

When a company is able to grow consistently in terms of earnings at a high compound rate have the highest likelihood of creating value for its shareholders over time. Analysts have predicted that KEY will grow it’s earning at a 9.50% annual rate in the next 5 years. This is in contrast to KO which will have a positive growth at a 7.66% annual rate. This means that the higher growth rate of KEY implies a greater potential for capital appreciation over the years.

Profitability and Returns

Growth alone cannot be used to see if the company will be valuable. Shareholders will be the losers if a company invest in ventures that aren’t profitable enough to support upbeat growth. In order for us to accurately measure profitability and return, we will be using the EBITDA margin and Return on Investment (ROI), which balances the difference in capital structure. KEY has an EBITDA margin of 48.92%, this implies that the underlying business of KEY is more profitable. The ROI of KEY is 10.80% while that of KO is 12.50%. These figures suggest that KO ventures generate a higher ROI than that of KEY.

Cash Flow



The value of a stock is ultimately determined by the amount of cash flow that the investors have available. Over the last 12 months, KEY’s free cash flow per share is a positive 4.48, while that of KO is negative -7.23.

Liquidity and Financial Risk

The ability of a company to meet up with its short-term obligations and be able to clear its longer-term debts is measured using Liquidity and leverage ratios. The debt ratio of KEY is 1.02 compared to 2.79 for KO. KO can be able to settle its long-term debts and thus is a lower financial risk than KEY.

Valuation

KEY currently trades at a forward P/E of 10.38, a P/B of 1.46, and a P/S of 4.76 while KO trades at a forward P/E of 19.68, a P/B of 11.13, and a P/S of 5.36. This means that looking at the earnings, book values and sales basis, KEY is the cheaper one. It is very obvious that earnings are the most important factors to investors, thus analysts are most likely to place their bet on the P/E.

Analyst Price Targets and Opinions




The mistake some people make is that they think a cheap stock has more value to it. In order to know the value of a stock, there is need to compare its current price to its likely trading price in the future. The price of KEY is currently at a -17.32% to its one-year price target of 23.27. Looking at its rival pricing, KO is at a -11.03% relative to its price target of 50.03.

When looking at the investment recommendation on say a scale of 1 to 5 (1 being a strong buy, 3 a hold, and 5 a sell), KEY is given a 2.00 while 2.40 placed for KO. This means that analysts are more bullish on the outlook for KO stocks.

Insider Activity and Investor Sentiment

Short interest or otherwise called the percentage of a stock’s tradable shares currently being shorted is another data that investors use to get a handle on sentiment. The short ratio for KEY is 1.02 while that of KO is just 3.07. This means that analysts are more bullish on the forecast for KEY stock.

Conclusion

The stock of The Coca-Cola Company defeats that of KeyCorp when the two are compared, with KO taking 3 out of the total factors that were been considered. KO happens to be more profitable, generates a higher ROI, has higher cash flow per share, higher liquidity and has a lower financial risk. When looking at the stock valuation, KO is the cheaper one on an earnings, book value and sales basis. Finally, the sentiment signal for KO is better on when it is viewed on short interest.

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