Global

Choosing Between Mondelez International, Inc. (MDLZ) and Banco Santander, S.A. (SAN)

Mondelez International, Inc. (NASDAQ:MDLZ) shares are down more than -1.24% this year and recently decreased -1.15% or -$0.49 to settle at $42.27. Banco Santander, S.A. (NYSE:SAN), on the other hand, is down -23.70% year to date as of 10/10/2018. It currently trades at $4.99 and has returned -0.80% during the past week.

Mondelez International, Inc. (NASDAQ:MDLZ) and Banco Santander, S.A. (NYSE:SAN) are the two most active stocks in the Confectioners industry based on today’s trading volumes. Investor interest in the two stocks is clearly very high, but which is the better investment? To answer this question, we will compare the two companies across growth, profitability, risk, and valuation metrics, and also examine their analyst ratings and insider activity trends.

Growth

Companies that can increase earnings at a high compound rate over time are attractive to investors. Analysts expect MDLZ to grow earnings at a 8.34% annual rate over the next 5 years. Comparatively, SAN is expected to grow at a 8.64% annual rate. All else equal, SAN’s higher growth rate would imply a greater potential for capital appreciation.

Profitability and Returns

Growth in and of itself is not necessarily valuable, and it can even be harmful to shareholders if companies overinvest in unprofitable projects in pursuit of that growth. We will use EBITDA margin and Return on Investment (ROI), which adjust for differences in capital structure, as measure of profitability and return. Mondelez International, Inc. (MDLZ) has an EBITDA margin of 15.62%. This suggests that MDLZ underlying business is more profitable MDLZ’s ROI is 6.30% while SAN has a ROI of 6.80%. The interpretation is that SAN’s business generates a higher return on investment than MDLZ’s.

Cash Flow



Earnings don’t always accurately reflect the amount of cash that a company brings in. MDLZ’s free cash flow (“FCF”) per share for the trailing twelve months was +0.30. Comparatively, SAN’s free cash flow per share was +1.19. On a percent-of-sales basis, MDLZ’s free cash flow was 1.7% while SAN converted 24.09% of its revenues into cash flow. This means that, for a given level of sales, SAN is able to generate more free cash flow for investors.

Liquidity and Financial Risk

MDLZ’s debt-to-equity ratio is 0.78 versus a D/E of 2.41 for SAN. SAN is therefore the more solvent of the two companies, and has lower financial risk.

Valuation

MDLZ trades at a forward P/E of 16.89, a P/B of 2.47, and a P/S of 2.35, compared to a forward P/E of 8.88, a P/B of 0.74, and a P/S of 1.30 for SAN. MDLZ 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. MDLZ is currently priced at a -13.2% to its one-year price target of 48.70. Comparatively, SAN is -23.11% relative to its price target of 6.49. This suggests that SAN is the better investment over the next year.

Risk and Volatility

Analyst use beta to measure a stock’s volatility relative to the overall market. Stocks with a beta above 1 tend to have bigger swings in price than the market as a whole, the opposite being the case for stocks with a beta below 1. MDLZ has a beta of 0.83 and SAN’s beta is 1.31. MDLZ’s shares are therefore the less volatile of the two stocks.

Insider Activity and Investor Sentiment

Analysts often look at short interest, or the percentage of a company’s float currently being shorted by investors, to aid in their outlook for a particular stock. MDLZ has a short ratio of 2.27 compared to a short interest of 0.94 for SAN. This implies that the market is currently less bearish on the outlook for SAN.

Summary




Banco Santander, S.A. (NYSE:SAN) beats Mondelez International, Inc. (NASDAQ:MDLZ) on a total of 9 of the 14 factors compared between the two stocks. SAN 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, SAN is the cheaper of the two stocks on an earnings, book value and sales basis, SAN is more undervalued relative to its price target. Finally, SAN has better sentiment signals based on short interest.

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