Banco Bradesco S.A. (BBD) vs. Nordstrom, Inc. (JWN): Breaking Down the Foreign Regional Banks Industry’s Two Hottest Stocks

Banco Bradesco S.A. (NYSE:BBD) shares are up more than 4.93% this year and recently increased 1.42% or $0.12 to settle at $8.57. Nordstrom, Inc. (NYSE:JWN), on the other hand, is down -37.52% year to date as of 08/13/2019. It currently trades at $29.12 and has returned -4.68% during the past week.

Banco Bradesco S.A. (NYSE:BBD) and Nordstrom, Inc. (NYSE:JWN) are the two most active stocks in the Foreign Regional Banks industry based on today’s trading volumes. To determine if one is a better investment than the other, we will compare the two companies’ growth, profitability, risk, return, and valuation characteristics, as well as their analyst ratings and sentiment signals.

Growth

Companies that can increase earnings at a high compound rate over time are attractive to investors. Analysts expect BBD to grow earnings at a 22.30% annual rate over the next 5 years. Comparatively, JWN is expected to grow at a 6.00% annual rate. All else equal, BBD’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. EBITDA margin of 9.06% for Nordstrom, Inc. (JWN).

Cash Flow

Earnings don’t always accurately reflect the amount of cash that a company brings in. BBD’s free cash flow (“FCF”) per share for the trailing twelve months was +1.71. Comparatively, JWN’s free cash flow per share was -1.79. On a percent-of-sales basis, BBD’s free cash flow was 26.8% while JWN converted -1.75% of its revenues into cash flow. This means that, for a given level of sales, BBD is able to generate more free cash flow for investors.

Valuation

BBD trades at a forward P/E of 9.52, a P/B of 1.88, compared to a forward P/E of 8.43, a P/B of 6.93, and a P/S of 0.29 for JWN. 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. BBD is currently priced at a -17.99% to its one-year price target of 10.45. Comparatively, JWN is -16.97% relative to its price target of 35.07. This suggests that BBD is the better investment over the next year.

Insider Activity and Investor Sentiment

The analysis of insider buying and selling trends can be extended to the aggregate level. Short interest, which represents the percentage of a stock’s tradable shares currently being shorted, captures what the market as a whole feels about a stock. BBD has a short ratio of 0.74 compared to a short interest of 5.55 for JWN. This implies that the market is currently less bearish on the outlook for BBD.

Summary

Banco Bradesco S.A. (NYSE:BBD) beats Nordstrom, Inc. (NYSE:JWN) on a total of 10 of the 14 factors compared between the two stocks. BBD is growing fastly, has higher cash flow per share, has a higher cash conversion rate and has lower financial risk. In terms of valuation, BBD is the cheaper of the two stocks on book value and sales basis, BBD is more undervalued relative to its price target. Finally, BBD has better sentiment signals based on short interest.