PPL Corporation (NYSE:PPL) shares are up more than 20.68% this year and recently increased 0.47% or $0.16 to settle at $34.19. Tech Data Corporation (NASDAQ:TECD), on the other hand, is up 76.12% year to date as of 12/02/2019. It currently trades at $144.08 and has returned 11.61% during the past week.
PPL Corporation (NYSE:PPL) and Tech Data Corporation (NASDAQ:TECD) are the two most active stocks in the Electric Utilities industry based on today’s trading volumes. The market is clearly enthusiastic about both these stocks, but which is the better investment? To answer this, we will compare the two companies based on the strength of their growth, profitability, risk, returns, valuation, analyst recommendations, and insider trends.
The ability to grow earnings at a compound rate over time is a crucial determinant of investment value. Analysts expect PPL to grow earnings at a 0.50% annual rate over the next 5 years. Comparatively, TECD is expected to grow at a 14.00% annual rate. All else equal, TECD’s higher growth rate would imply a greater potential for capital appreciation.
Growth isn’t very attractive to investors if companies are sacrificing profitability and shareholder returns to achieve that growth. We will use EBITDA margin and Return on Investment (ROI), which control for differences in capital structure between the two companies, to measure profitability and return., compared to an EBITDA margin of 1.82% for Tech Data Corporation (TECD). PPL’s ROI is 7.10% while TECD has a ROI of 9.50%. The interpretation is that TECD’s business generates a higher return on investment than PPL’s.Cash Flow
If there’s one thing investors care more about than earnings, it’s cash flow. PPL’s free cash flow (“FCF”) per share for the trailing twelve months was -0.28. Comparatively, TECD’s free cash flow per share was +8.40. On a percent-of-sales basis, PPL’s free cash flow was -2.6% while TECD converted 0.8% of its revenues into cash flow. This means that, for a given level of sales, TECD is able to generate more free cash flow for investors.
Liquidity and leverage ratios measure a company’s ability to meet short-term obligations and longer-term debts. PPL has a current ratio of 0.70 compared to 1.30 for TECD. This means that TECD can more easily cover its most immediate liabilities over the next twelve months. PPL’s debt-to-equity ratio is 1.93 versus a D/E of 0.49 for TECD. PPL is therefore the more solvent of the two companies, and has lower financial risk.Valuation
PPL trades at a forward P/E of 13.56, a P/B of 2.07, and a P/S of 3.21, compared to a forward P/E of 10.88, a P/B of 1.82, and a P/S of 0.14 for TECD. PPL 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. PPL is currently priced at a 2.06% to its one-year price target of 33.50. Comparatively, TECD is 13% relative to its price target of 127.50. This suggests that PPL is the better investment over the next year.
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. PPL has a beta of 0.52 and TECD’s beta is 1.14. PPL’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. PPL has a short ratio of 3.15 compared to a short interest of 2.21 for TECD. This implies that the market is currently less bearish on the outlook for TECD.
Tech Data Corporation (NASDAQ:TECD) beats PPL Corporation (NYSE:PPL) on a total of 10 of the 14 factors compared between the two stocks. TECD is more profitable, 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, TECD is the cheaper of the two stocks on an earnings, book value and sales basis, Finally, TECD has better sentiment signals based on short interest.