First Data Corporation (NYSE:FDC) shares are up more than 34.83% this year and recently decreased -5.30% or -$1.26 to settle at $22.53. Altria Group, Inc. (NYSE:MO), on the other hand, is down -11.90% year to date as of 10/10/2018. It currently trades at $62.91 and has returned 3.37% during the past week.
First Data Corporation (NYSE:FDC) and Altria Group, Inc. (NYSE:MO) are the two most active stocks in the Business Services industry based on today’s trading volumes. Investors are clearly interested in the two names, but is one a better choice than the other? We will compare the two companies across growth, profitability, risk, valuation, and insider trends to answer this question.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 FDC to grow earnings at a 11.76% annual rate over the next 5 years. Comparatively, MO is expected to grow at a 10.14% annual rate. All else equal, FDC’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. , compared to an EBITDA margin of 42.39% for Altria Group, Inc. (MO). FDC’s ROI is 9.00% while MO has a ROI of 24.00%. The interpretation is that MO’s business generates a higher return on investment than FDC’s.Cash Flow
Cash is king when it comes to investing. FDC’s free cash flow (“FCF”) per share for the trailing twelve months was +0.56. Comparatively, MO’s free cash flow per share was -0.17. On a percent-of-sales basis, FDC’s free cash flow was 4.34% while MO converted -1.25% of its revenues into cash flow. This means that, for a given level of sales, FDC is able to generate more free cash flow for investors.Liquidity and Financial Risk
Liquidity and leverage ratios provide insight into the financial health of a company, and allow investors to determine the likelihood that the company will be able to continue operating as a going concern. FDC has a current ratio of 1.00 compared to 0.60 for MO. This means that FDC can more easily cover its most immediate liabilities over the next twelve months. FDC’s debt-to-equity ratio is 5.20 versus a D/E of 0.88 for MO. FDC is therefore the more solvent of the two companies, and has lower financial risk.Valuation
FDC trades at a forward P/E of 13.66, a P/B of 5.84, and a P/S of 1.91, compared to a forward P/E of 14.43, a P/B of 7.53, and a P/S of 4.71 for MO. FDC 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
A cheap stock is not necessarily a value stock. Most of the time, a stock is cheap for good reason. A stock only has value if the current price is substantially below the price at which it should trade in the future. FDC is currently priced at a -20.56% to its one-year price target of 28.36. Comparatively, MO is -6.83% relative to its price target of 67.52. This suggests that FDC 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. FDC has a short ratio of 4.10 compared to a short interest of 4.61 for MO. This implies that the market is currently less bearish on the outlook for FDC.Summary
First Data Corporation (NYSE:FDC) beats Altria Group, Inc. (NYSE:MO) on a total of 11 of the 14 factors compared between the two stocks. FDC is growing fastly, has higher cash flow per share, has a higher cash conversion rate and higher liquidity. In terms of valuation, FDC is the cheaper of the two stocks on an earnings, book value and sales basis, FDC is more undervalued relative to its price target. Finally, FDC has better sentiment signals based on short interest.