SITE Centers Corp. (NYSE:SITC) shares are up more than 35.50% this year and recently decreased -0.99% or -$0.15 to settle at $15.00. MRC Global Inc. (NYSE:MRC), on the other hand, is up 8.34% year to date as of 09/12/2019. It currently trades at $13.25 and has returned 4.00% during the past week.
SITE Centers Corp. (NYSE:SITC) and MRC Global Inc. (NYSE:MRC) are the two most active stocks in the REIT – Retail 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 SITC to grow earnings at a -6.04% annual rate over the next 5 years. Comparatively, MRC is expected to grow at a 15.00% annual rate. All else equal, MRC’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 5.57% for MRC Global Inc. (MRC). SITC’s ROI is 0.40% while MRC has a ROI of 7.40%. The interpretation is that MRC’s business generates a higher return on investment than SITC’s.Cash Flow
Earnings don’t always accurately reflect the amount of cash that a company brings in. SITC’s free cash flow (“FCF”) per share for the trailing twelve months was +0.05. Comparatively, MRC’s free cash flow per share was +0.45. On a percent-of-sales basis, SITC’s free cash flow was 0% while MRC converted 0.9% of its revenues into cash flow. This means that, for a given level of sales, MRC is able to generate more free cash flow for investors.
SITC’s debt-to-equity ratio is 1.24 versus a D/E of 1.10 for MRC. SITC is therefore the more solvent of the two companies, and has lower financial risk.
SITC trades at a forward P/E of 82.42, a P/B of 1.81, and a P/S of 5.00, compared to a forward P/E of 12.37, a P/B of 1.64, and a P/S of 0.29 for MRC. SITC 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
When investing it’s crucial to distinguish between price and value. As Warren Buffet said, “price is what you pay, value is what you get”. SITC is currently priced at a 6.23% to its one-year price target of 14.12. Comparatively, MRC is -24.07% relative to its price target of 17.45. This suggests that MRC 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. SITC has a beta of 0.75 and MRC’s beta is 2.07. SITC’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. SITC has a short ratio of 7.34 compared to a short interest of 5.75 for MRC. This implies that the market is currently less bearish on the outlook for MRC.
MRC Global Inc. (NYSE:MRC) beats SITE Centers Corp. (NYSE:SITC) on a total of 12 of the 14 factors compared between the two stocks. MRC 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, MRC is the cheaper of the two stocks on an earnings, book value and sales basis, MRC is more undervalued relative to its price target. Finally, MRC has better sentiment signals based on short interest.