A Side-by-side Analysis of Tanger Factory Outlet Centers, Inc. (SKT) and DENTSPLY SIRONA Inc. (XRAY)

Tanger Factory Outlet Centers, Inc. (NYSE:SKT) shares are down more than -18.40% this year and recently decreased -3.34% or -$0.57 to settle at $16.50. DENTSPLY SIRONA Inc. (NASDAQ:XRAY), on the other hand, is up 39.02% year to date as of 09/12/2019. It currently trades at $51.73 and has returned 0.15% during the past week.

Tanger Factory Outlet Centers, Inc. (NYSE:SKT) and DENTSPLY SIRONA Inc. (NASDAQ:XRAY) are the two most active stocks in the REIT – Retail industry based on today’s trading volumes. Investor interest in the two stocks is clearly very high, but which is the better investment? To answer this question, we will compare the two companies across growth, profitability, risk, and valuation metrics, and also examine their analyst ratings and insider activity trends.

Growth

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 SKT to grow earnings at a 6.70% annual rate over the next 5 years. Comparatively, XRAY is expected to grow at a 12.83% annual rate. All else equal, XRAY’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. Tanger Factory Outlet Centers, Inc. (SKT) has an EBITDA margin of 56.01%. This suggests that SKT underlying business is more profitable SKT’s ROI is 5.00% while XRAY has a ROI of -15.00%. The interpretation is that SKT’s business generates a higher return on investment than XRAY’s.

Cash Flow

The amount of free cash flow available to investors is ultimately what determines the value of a stock. SKT’s free cash flow (“FCF”) per share for the trailing twelve months was +0.32. Comparatively, XRAY’s free cash flow per share was +0.42. On a percent-of-sales basis, SKT’s free cash flow was 0.01% while XRAY converted 2.36% of its revenues into cash flow. This means that, for a given level of sales, XRAY is able to generate more free cash flow for investors.

Liquidity and Financial Risk

SKT’s debt-to-equity ratio is 3.23 versus a D/E of 0.29 for XRAY. SKT is therefore the more solvent of the two companies, and has lower financial risk.

Valuation

SKT trades at a forward P/E of 19.95, a P/B of 3.13, and a P/S of 3.11, compared to a forward P/E of 19.27, a P/B of 2.24, and a P/S of 3.00 for XRAY. SKT 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. SKT is currently priced at a 8.77% to its one-year price target of 15.17. Comparatively, XRAY is -12.75% relative to its price target of 59.29. This suggests that XRAY 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. SKT has a beta of 0.65 and XRAY’s beta is 0.98. SKT’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. SKT has a short ratio of 19.66 compared to a short interest of 2.73 for XRAY. This implies that the market is currently less bearish on the outlook for XRAY.

Summary

DENTSPLY SIRONA Inc. (NASDAQ:XRAY) beats Tanger Factory Outlet Centers, Inc. (NYSE:SKT) on a total of 11 of the 14 factors compared between the two stocks. XRAY is more profitable, has higher cash flow per share, has a higher cash conversion rate, higher liquidity and has lower financial risk. In terms of valuation, XRAY is the cheaper of the two stocks on an earnings, book value and sales basis, XRAY is more undervalued relative to its price target. Finally, XRAY has better sentiment signals based on short interest.