Global

A Side-by-side Analysis of U.S. Bancorp (USB) and Fiat Chrysler Automobiles N.V. (FCAU)

U.S. Bancorp (NYSE:USB) shares are down more than -0.47% this year and recently decreased -1.15% or -$0.62 to settle at $53.33. Fiat Chrysler Automobiles N.V. (NYSE:FCAU), on the other hand, is down -9.75% year to date as of 10/10/2018. It currently trades at $16.10 and has returned -9.04% during the past week.

U.S. Bancorp (NYSE:USB) and Fiat Chrysler Automobiles N.V. (NYSE:FCAU) are the two most active stocks in the Regional – Midwest 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.

Growth

Companies that can consistently grow earnings at a high compound rate usually have the greatest potential to create value for shareholders in the long-run. Analysts expect USB to grow earnings at a 6.80% annual rate over the next 5 years. Comparatively, FCAU is expected to grow at a 20.11% annual rate. All else equal, FCAU’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. U.S. Bancorp (USB) has an EBITDA margin of 50.55%. This suggests that USB underlying business is more profitable

Cash Flow



If there’s one thing investors care more about than earnings, it’s cash flow. USB’s free cash flow (“FCF”) per share for the trailing twelve months was +1.58. Comparatively, FCAU’s free cash flow per share was +0.97. On a percent-of-sales basis, USB’s free cash flow was 10.73% while FCAU converted 1.51% of its revenues into cash flow. This means that, for a given level of sales, USB is able to generate more free cash flow for investors.

Valuation

USB trades at a forward P/E of 12.23, a P/B of 1.98, and a P/S of 5.74, compared to a forward P/E of 4.12, a P/B of 0.95, and a P/S of 0.19 for FCAU. USB is the expensive 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

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. USB is currently priced at a -7.8% to its one-year price target of 57.84. Comparatively, FCAU is -37.55% relative to its price target of 25.78. This suggests that FCAU is the better investment over the next year.

Insider Activity and Investor Sentiment

Short interest, or the percentage of a stock’s tradable shares currently being shorted, is another metric investors use to get a pulse on sentiment. USB has a short ratio of 2.46 compared to a short interest of 2.49 for FCAU. This implies that the market is currently less bearish on the outlook for USB.

Summary

Fiat Chrysler Automobiles N.V. (NYSE:FCAU) beats U.S. Bancorp (NYSE:USB) on a total of 8 of the 14 factors compared between the two stocks. FCAU is more profitable and has lower financial risk. In terms of valuation, FCAU is the cheaper of the two stocks on an earnings, book value and sales basis, FCAU is more undervalued relative to its price target. Finally, FDC has better sentiment signals based on short interest.

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