First Industrial Realty Trust, Inc. (NYSE:FR) shares are up more than 46.40% this year and recently decreased -0.78% or -$0.33 to settle at $42.25. Magna International Inc. (NYSE:MGA), on the other hand, is up 21.78% year to date as of 12/02/2019. It currently trades at $55.35 and has returned 2.54% during the past week.
First Industrial Realty Trust, Inc. (NYSE:FR) and Magna International Inc. (NYSE:MGA) are the two most active stocks in the REIT – Industrial 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.
One of the key things investors look for in a company is the ability to grow earnings at a high compound rate over time. Analysts expect FR to grow earnings at a 10.00% annual rate over the next 5 years. Comparatively, MGA is expected to grow at a 1.99% annual rate. All else equal, FR’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. First Industrial Realty Trust, Inc. (FR) has an EBITDA margin of 71.25%. This suggests that FR underlying business is more profitable FR’s ROI is 4.80% while MGA has a ROI of 15.50%. The interpretation is that MGA’s business generates a higher return on investment than FR’s.Cash Flow
If there’s one thing investors care more about than earnings, it’s cash flow. FR’s free cash flow (“FCF”) per share for the trailing twelve months was -0.41. Comparatively, MGA’s free cash flow per share was +1.24. On a percent-of-sales basis, FR’s free cash flow was -0.01% while MGA converted 0.93% of its revenues into cash flow. This means that, for a given level of sales, MGA is able to generate more free cash flow for investors.
FR’s debt-to-equity ratio is 0.83 versus a D/E of 0.34 for MGA. FR is therefore the more solvent of the two companies, and has lower financial risk.
FR trades at a forward P/E of 49.94, a P/B of 3.16, and a P/S of 12.91, compared to a forward P/E of 8.25, a P/B of 1.63, and a P/S of 0.43 for MGA. FR 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
A cheap stock isn’t a good investment if the stock is priced accurately. To get a sense of “value” we must compare the current price to some measure of intrinsic value such as a price target. FR is currently priced at a -2.49% to its one-year price target of 43.33. Comparatively, MGA is -8.36% relative to its price target of 60.40. This suggests that MGA 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. FR has a beta of 0.68 and MGA’s beta is 1.55. FR’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. FR has a short ratio of 3.23 compared to a short interest of 4.12 for MGA. This implies that the market is currently less bearish on the outlook for FR.
Magna International Inc. (NYSE:MGA) beats First Industrial Realty Trust, Inc. (NYSE:FR) on a total of 9 of the 14 factors compared between the two stocks. MGA is growing fastly, has higher cash flow per share, has a higher cash conversion rate, higher liquidity and has lower financial risk. In terms of valuation, MGA is the cheaper of the two stocks on an earnings, book value and sales basis, MGA is more undervalued relative to its price target.