Regions Financial Corporation (NYSE:RF) shares are up more than 10.10% this year and recently increased 1.54% or $0.24 to settle at $15.81. BB&T Corporation (NYSE:BBT), on the other hand, is up 3.40% year to date as of 10/26/2017. It currently trades at $48.62 and has returned 4.02% during the past week.
Regions Financial Corporation (NYSE:RF) and BB&T Corporation (NYSE:BBT) are the two most active stocks in the Regional – Southeast 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.
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 RF to grow earnings at a 11.71% annual rate over the next 5 years. Comparatively, BBT is expected to grow at a 6.22% annual rate. All else equal, RF’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. , compared to an EBITDA margin of 44.75% for BB&T Corporation (BBT). RF’s ROI is 14.10% while BBT has a ROI of 10.20%. The interpretation is that RF’s business generates a higher return on investment than BBT’s.
The amount of free cash flow available to investors is ultimately what determines the value of a stock. RF’s free cash flow (“FCF”) per share for the trailing twelve months was +0.33. Comparatively, BBT’s free cash flow per share was -. On a percent-of-sales basis, RF’s free cash flow was 6.61% while BBT converted 0% of its revenues into cash flow. This means that, for a given level of sales, RF is able to generate more free cash flow for investors.
RF’s debt-to-equity ratio is 0.22 versus a D/E of 0.80 for BBT. BBT is therefore the more solvent of the two companies, and has lower financial risk.
RF trades at a forward P/E of 13.99, a P/B of 1.18, and a P/S of 4.93, compared to a forward P/E of 14.20, a P/B of 1.44, and a P/S of 5.45 for BBT. RF 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. RF is currently priced at a 2.46% to its one-year price target of 15.43. Comparatively, BBT is 0.35% relative to its price target of 48.45. This suggests that BBT is the better investment over the next year.
The average investment recommendation on a scale of 1 to 5 (1 being a strong buy, 3 a hold, and 5 a sell) is 2.90 for RF and 2.60 for BBT, which implies that analysts are more bullish on the outlook for RF.
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. RF has a beta of 1.29 and BBT’s beta is 0.98. BBT’s shares are therefore the less volatile of the two stocks.
Insider Activity and Investor Sentiment
Short interest is another tool that analysts use to gauge investor sentiment. It represents the percentage of a stock’s tradable shares that are being shorted. RF has a short ratio of 2.08 compared to a short interest of 4.69 for BBT. This implies that the market is currently less bearish on the outlook for RF.
Regions Financial Corporation (NYSE:RF) beats BB&T Corporation (NYSE:BBT) on a total of 10 of the 14 factors compared between the two stocks. RF 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, RF is the cheaper of the two stocks on an earnings, book value and sales basis, Finally, RF has better sentiment signals based on short interest.