Critical Comparison: The PNC Financial Services Group, Inc. (PNC) vs. J.B. Hunt Transport Services, Inc. (JBHT)

The PNC Financial Services Group, Inc. (NYSE:PNC) shares are up more than 30.00% this year and recently decreased -0.80% or -$1.23 to settle at $151.98. J.B. Hunt Transport Services, Inc. (NASDAQ:JBHT), on the other hand, is up 22.87% year to date as of 12/02/2019. It currently trades at $114.32 and has returned -1.72% during the past week.

The PNC Financial Services Group, Inc. (NYSE:PNC) and J.B. Hunt Transport Services, Inc. (NASDAQ:JBHT) are the two most active stocks in the Money Center Banks 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.

Growth

The ability to consistently grow earnings at a high compound rate is a defining characteristic of the best companies for long-term investment. Analysts expect PNC to grow earnings at a 5.58% annual rate over the next 5 years. Comparatively, JBHT is expected to grow at a 8.89% annual rate. All else equal, JBHT’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., compared to an EBITDA margin of 12.58% for J.B. Hunt Transport Services, Inc. (JBHT). PNC’s ROI is 10.00% while JBHT has a ROI of 16.40%. The interpretation is that JBHT’s business generates a higher return on investment than PNC’s.

Cash Flow

Earnings don’t always accurately reflect the amount of cash that a company brings in. PNC’s free cash flow (“FCF”) per share for the trailing twelve months was +3.40. Comparatively, JBHT’s free cash flow per share was +1.26. On a percent-of-sales basis, PNC’s free cash flow was 7.57% while JBHT converted 1.56% of its revenues into cash flow. This means that, for a given level of sales, PNC is able to generate more free cash flow for investors.

Liquidity and Financial Risk

PNC’s debt-to-equity ratio is 0.80 versus a D/E of 0.59 for JBHT. PNC is therefore the more solvent of the two companies, and has lower financial risk.

Valuation

PNC trades at a forward P/E of 12.91, a P/B of 1.37, and a P/S of 4.84, compared to a forward P/E of 19.14, a P/B of 5.56, and a P/S of 1.36 for JBHT. 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. PNC is currently priced at a 0.6% to its one-year price target of 151.07. Comparatively, JBHT is 0.79% relative to its price target of 113.42. This suggests that PNC 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. PNC has a beta of 1.12 and JBHT’s beta is 1.11. JBHT’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. PNC has a short ratio of 2.99 compared to a short interest of 5.93 for JBHT. This implies that the market is currently less bearish on the outlook for PNC.

Summary

The PNC Financial Services Group, Inc. (NYSE:PNC) beats J.B. Hunt Transport Services, Inc. (NASDAQ:JBHT) on a total of 8 of the 14 factors compared between the two stocks. PNC is more profitable, has higher cash flow per share and has a higher cash conversion rate. In terms of valuation, PNC is the cheaper of the two stocks on an earnings and book value, PNC is more undervalued relative to its price target. Finally, PNC has better sentiment signals based on short interest.