Honeywell International Inc. (NYSE:HON) shares are up more than 27.63% this year and recently decreased -1.55% or -$2.65 to settle at $168.63. Exact Sciences Corporation (NASDAQ:EXAS), on the other hand, is up 72.25% year to date as of 09/12/2019. It currently trades at $108.69 and has returned -11.27% during the past week.
Honeywell International Inc. (NYSE:HON) and Exact Sciences Corporation (NASDAQ:EXAS) are the two most active stocks in the Diversified Machinery industry based on today’s trading volumes. Investors are clearly interested in the two names, but is one a better choice than the other? We will compare the two companies across growth, profitability, risk, valuation, and insider trends to answer this question.
Companies that can increase earnings at a high compound rate over time are attractive to investors. Analysts expect HON to grow earnings at a 6.75% annual rate over the next 5 years. Comparatively, EXAS is expected to grow at a 20.00% annual rate. All else equal, EXAS’s higher growth rate would imply a greater potential for capital appreciation.
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. Honeywell International Inc. (HON) has an EBITDA margin of 23.43%. This suggests that HON underlying business is more profitable HON’s ROI is 18.60% while EXAS has a ROI of -11.60%. The interpretation is that HON’s business generates a higher return on investment than EXAS’s.Cash Flow
If there’s one thing investors care more about than earnings, it’s cash flow. HON’s free cash flow (“FCF”) per share for the trailing twelve months was +1.24. Comparatively, EXAS’s free cash flow per share was -0.40. On a percent-of-sales basis, HON’s free cash flow was 2.13% while EXAS converted -0.01% of its revenues into cash flow. This means that, for a given level of sales, HON is able to generate more free cash flow for investors.
Analysts look at liquidity and leverage ratios to assess how easily a company can cover its liabilities. HON has a current ratio of 1.20 compared to 2.80 for EXAS. This means that EXAS can more easily cover its most immediate liabilities over the next twelve months. HON’s debt-to-equity ratio is 0.91 versus a D/E of 1.05 for EXAS. EXAS is therefore the more solvent of the two companies, and has lower financial risk.Valuation
HON trades at a forward P/E of 18.96, a P/B of 6.82, and a P/S of 3.16, compared to a P/B of 18.33, and a P/S of 22.89 for EXAS. 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
Investors often compare a stock’s current price to an analyst price target to get a sense of the potential upside within the next year. HON is currently priced at a -8.27% to its one-year price target of 183.84. Comparatively, EXAS is -18.55% relative to its price target of 133.44. This suggests that EXAS 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. HON has a beta of 1.10 and EXAS’s beta is 1.46. HON’s shares are therefore the less volatile of the two stocks.Insider Activity and Investor Sentiment
The analysis of insider buying and selling trends can be extended to the aggregate level. Short interest, which represents the percentage of a stock’s tradable shares currently being shorted, captures what the market as a whole feels about a stock. HON has a short ratio of 2.54 compared to a short interest of 7.33 for EXAS. This implies that the market is currently less bearish on the outlook for HON.
Honeywell International Inc. (NYSE:HON) beats Exact Sciences Corporation (NASDAQ:EXAS) on a total of 9 of the 14 factors compared between the two stocks. HON is more profitable, generates a higher return on investment, has higher cash flow per share, has a higher cash conversion rate and has lower financial risk. In terms of valuation, HON is the cheaper of the two stocks on book value and sales basis, Finally, HON has better sentiment signals based on short interest.