Finance

Dissecting the Numbers for ICICI Bank Limited (IBN) and Delta Air Lines, Inc. (DAL)

ICICI Bank Limited (NYSE:IBN) shares are down more than -13.77% this year and recently increased 2.32% or $0.19 to settle at $8.39. Delta Air Lines, Inc. (NYSE:DAL), on the other hand, is down -11.23% year to date as of 10/10/2018. It currently trades at $49.71 and has returned -8.49% during the past week.

ICICI Bank Limited (NYSE:IBN) and Delta Air Lines, Inc. (NYSE:DAL) are the two most active stocks in the Money Center Banks 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.

Growth

The ability to grow earnings at a compound rate over time is a crucial determinant of investment value. Analysts expect IBN to grow earnings at a 22.00% annual rate over the next 5 years. Comparatively, DAL is expected to grow at a 16.40% annual rate. All else equal, IBN’s higher growth rate would imply a greater potential for capital appreciation.

Profitability and Returns

A high growth rate isn’t necessarily valuable to investors. In fact, companies that overinvest in low return projects just to achieve a high growth rate can actually destroy shareholder value. Profitability and returns are a measure of the quality of a company’s business and its growth opportunities. We’ll use EBITDA margin and Return on Investment (ROI) to measure this. EBITDA margin of 16.79% for Delta Air Lines, Inc. (DAL). IBN’s ROI is 3.00% while DAL has a ROI of 19.40%. The interpretation is that DAL’s business generates a higher return on investment than IBN’s.

Cash Flow



If there’s one thing investors care more about than earnings, it’s cash flow. On a percent-of-sales basis, IBN’s free cash flow was 0% while DAL converted 2.43% of its revenues into cash flow. This means that, for a given level of sales, DAL is able to generate more free cash flow for investors.

Valuation

IBN trades at a forward P/E of 11.57, and a P/S of 6.94, compared to a forward P/E of 7.68, a P/B of 2.69, and a P/S of 0.81 for DAL. IBN is the cheaper of the two stocks on book value basis but is expensive in terms of P/E and P/S ratio. 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. IBN is currently priced at a -37.85% to its one-year price target of 13.50. Comparatively, DAL is -26.97% relative to its price target of 68.07. This suggests that IBN is the better investment over the next year.

Risk and Volatility

Beta is an important measure that gives investors a sense of the market risk associated with a particular stock. A beta above 1 signals above average market risk, while a beta below 1 implies below average volatility. IBN has a beta of 1.83 and DAL’s beta is 0.96. DAL’s shares are therefore the less volatile of the two stocks.

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. IBN has a short ratio of 1.93 compared to a short interest of 3.88 for DAL. This implies that the market is currently less bearish on the outlook for IBN.

Summary




Delta Air Lines, Inc. (NYSE:DAL) beats ICICI Bank Limited (NYSE:IBN) on a total of 9 of the 14 factors compared between the two stocks. DAL is growing fastly, generates a higher return on investment, has higher cash flow per share, has a higher cash conversion rate and higher liquidity. In terms of valuation, DAL is the cheaper of the two stocks on an earnings and sales basis, Finally, BBD has better sentiment signals based on short interest.

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