A Side-by-side Analysis of Telefonica, S.A. (TEF) and Baxter International Inc. (BAX)

Telefonica, S.A. (NYSE:TEF) shares are down more than -16.12% this year and recently increased 1.00% or $0.08 to settle at $8.12. Baxter International Inc. (NYSE:BAX), on the other hand, is up 10.13% year to date as of 10/10/2018. It currently trades at $71.19 and has returned -6.22% during the past week.

Telefonica, S.A. (NYSE:TEF) and Baxter International Inc. (NYSE:BAX) are the two most active stocks in the Telecom Services – Foreign 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 TEF to grow earnings at a 52.90% annual rate over the next 5 years. Comparatively, BAX is expected to grow at a 13.00% annual rate. All else equal, TEF’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. EBITDA margin of 20.42% for Baxter International Inc. (BAX). TEF’s ROI is 8.00% while BAX has a ROI of 10.90%. The interpretation is that BAX’s business generates a higher return on investment than TEF’s.

Cash Flow

If there’s one thing investors care more about than earnings, it’s cash flow. TEF’s free cash flow (“FCF”) per share for the trailing twelve months was -0.02. Comparatively, BAX’s free cash flow per share was +0.30. On a percent-of-sales basis, TEF’s free cash flow was -0.18% while BAX converted 1.52% of its revenues into cash flow. This means that, for a given level of sales, BAX 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. TEF has a current ratio of 0.70 compared to 2.60 for BAX. This means that BAX can more easily cover its most immediate liabilities over the next twelve months. TEF’s debt-to-equity ratio is 3.70 versus a D/E of 0.39 for BAX. TEF is therefore the more solvent of the two companies, and has lower financial risk.


TEF trades at a forward P/E of 7.89, a P/B of 3.26, and a P/S of 0.73, compared to a forward P/E of 21.58, a P/B of 4.29, and a P/S of 3.46 for BAX. TEF is the cheaper of the two stocks on an earnings, book value and sales basis. 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

When investing it’s crucial to distinguish between price and value. As Warren Buffet said, “price is what you pay, value is what you get”. TEF is currently priced at a -35.81% to its one-year price target of 12.65. Comparatively, BAX is -10.59% relative to its price target of 79.62. This suggests that TEF is the better investment over the next year.

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. TEF has a beta of 0.91 and BAX’s beta is 0.84. BAX’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. TEF has a short ratio of 4.95 compared to a short interest of 1.77 for BAX. This implies that the market is currently less bearish on the outlook for BAX.


Baxter International Inc. (NYSE:BAX) beats Telefonica, S.A. (NYSE:TEF) on a total of 8 of the 14 factors compared between the two stocks. BAX is growing fastly, generates a higher return on investment, has higher cash flow per share, has a higher cash conversion rate, higher liquidity and has lower financial risk. In terms of valuation, TEF is the cheaper of the two stocks on an earnings, book value and sales basis, Finally, BAX has better sentiment signals based on short interest.

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