Should You Buy TechnipFMC plc (FTI) or Brixmor Property Group Inc. (BRX)?

TechnipFMC plc (NYSE:FTI) shares are up more than 28.35% this year and recently increased 0.76% or $0.19 to settle at $25.13. Brixmor Property Group Inc. (NYSE:BRX), on the other hand, is up 33.97% year to date as of 09/12/2019. It currently trades at $19.68 and has returned 3.42% during the past week.

TechnipFMC plc (NYSE:FTI) and Brixmor Property Group Inc. (NYSE:BRX) are the two most active stocks in the Oil & Gas Equipment & Services 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.

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 FTI to grow earnings at a 36.65% annual rate over the next 5 years. Comparatively, BRX is expected to grow at a -5.09% annual rate. All else equal, FTI’s higher growth rate would imply a greater potential for capital appreciation.

Profitability and Returns

Growth doesn’t mean much if it comes at the cost of weak profitability. To adjust for differences in capital structure we’ll use EBITDA margin and Return on Investment (ROI) as measures of profitability and return. EBITDA margin of 55.94% for Brixmor Property Group Inc. (BRX). FTI’s ROI is -9.10% while BRX has a ROI of 4.80%. The interpretation is that BRX’s business generates a higher return on investment than FTI’s.

Cash Flow

The amount of free cash flow available to investors is ultimately what determines the value of a stock. FTI’s free cash flow (“FCF”) per share for the trailing twelve months was -0.30. Comparatively, BRX’s free cash flow per share was -0.07. On a percent-of-sales basis, FTI’s free cash flow was -1.07% while BRX converted -1.69% of its revenues into cash flow. This means that, for a given level of sales, FTI is able to generate more free cash flow for investors.

Liquidity and Financial Risk

FTI’s debt-to-equity ratio is 0.37 versus a D/E of 1.78 for BRX. BRX is therefore the more solvent of the two companies, and has lower financial risk.

Valuation

FTI trades at a forward P/E of 15.12, a P/B of 1.09, and a P/S of 0.90, compared to a forward P/E of 23.60, a P/B of 2.12, and a P/S of 4.95 for BRX. FTI is the cheaper 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 is not necessarily a value stock. Most of the time, a stock is cheap for good reason. A stock only has value if the current price is substantially below the price at which it should trade in the future. FTI is currently priced at a -19.4% to its one-year price target of 31.18. Comparatively, BRX is -0.05% relative to its price target of 19.69. This suggests that FTI is the better investment over the next year.

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. FTI has a short ratio of 3.30 compared to a short interest of 2.93 for BRX. This implies that the market is currently less bearish on the outlook for BRX.

Summary

TechnipFMC plc (NYSE:FTI) beats Brixmor Property Group Inc. (NYSE:BRX) on a total of 10 of the 14 factors compared between the two stocks. FTI is growing fastly, has a higher cash conversion rate, higher liquidity and has lower financial risk. In terms of valuation, FTI is the cheaper of the two stocks on an earnings, book value and sales basis, FTI is more undervalued relative to its price target.