Mondelez International, Inc. (NASDAQ:MDLZ) shares are up more than 30.08% this year and recently increased 0.52% or $0.27 to settle at $52.07. XPO Logistics, Inc. (NYSE:XPO), on the other hand, is up 50.19% year to date as of 11/12/2019. It currently trades at $85.67 and has returned 2.39% during the past week.
Mondelez International, Inc. (NASDAQ:MDLZ) and XPO Logistics, Inc. (NYSE:XPO) are the two most active stocks in the Confectioners 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.
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 MDLZ to grow earnings at a 5.65% annual rate over the next 5 years. Comparatively, XPO is expected to grow at a 25.57% annual rate. All else equal, XPO’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 9.2% for XPO Logistics, Inc. (XPO). MDLZ’s ROI is 5.50% while XPO has a ROI of 7.10%. The interpretation is that XPO’s business generates a higher return on investment than MDLZ’s.
Earnings don’t always accurately reflect the amount of cash that a company brings in. MDLZ’s free cash flow (“FCF”) per share for the trailing twelve months was +0.16. Comparatively, XPO’s free cash flow per share was +0.98. On a percent-of-sales basis, MDLZ’s free cash flow was 0.89% while XPO converted 0.52% of its revenues into cash flow. This means that, for a given level of sales, MDLZ is able to generate more free cash flow for investors.
Liquidity and Financial Risk
Balance sheet risk is one of the biggest factors to consider before investing. MDLZ has a current ratio of 0.50 compared to 1.10 for XPO. This means that XPO can more easily cover its most immediate liabilities over the next twelve months. MDLZ’s debt-to-equity ratio is 0.73 versus a D/E of 2.05 for XPO. XPO is therefore the more solvent of the two companies, and has lower financial risk.
MDLZ trades at a forward P/E of 19.64, a P/B of 2.81, and a P/S of 2.91, compared to a forward P/E of 18.72, a P/B of 3.11, and a P/S of 0.47 for XPO. MDLZ is the cheaper of the two stocks on book value basis but is expensive in terms of P/E and P/S ratio. 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. MDLZ is currently priced at a -14.86% to its one-year price target of 61.16. Comparatively, XPO is -3.81% relative to its price target of 89.06. This suggests that MDLZ is the better investment over the next year.
Risk and Volatility
To gauge the market risk of a particular stock, investors use beta. Stocks with a beta above 1 are more volatile than the market as a whole. Conversely, a beta below 1 implies below average systematic risk. MDLZ has a beta of 0.77 and XPO’s beta is 2.51. MDLZ’s shares are therefore the less volatile of the two stocks.
Insider Activity and Investor Sentiment
Short interest, or the percentage of a stock’s tradable shares currently being shorted, is another metric investors use to get a pulse on sentiment. MDLZ has a short ratio of 1.87 compared to a short interest of 12.32 for XPO. This implies that the market is currently less bearish on the outlook for MDLZ.
Mondelez International, Inc. (NASDAQ:MDLZ) beats XPO Logistics, Inc. (NYSE:XPO) on a total of 8 of the 14 factors compared between the two stocks. MDLZ is more profitable, has a higher cash conversion rate and has lower financial risk. MDLZ is more undervalued relative to its price target. Finally, MDLZ has better sentiment signals based on short interest.