Andeavor (NYSE:ANDV) shares are up more than 26.22% this year and recently decreased -1.40% or -$1.57 to settle at $110.38. CVR Energy, Inc. (NYSE:CVI), on the other hand, is up 39.66% year to date as of 12/18/2017. It currently trades at $35.46 and has returned 4.39% during the past week.
Andeavor (NYSE:ANDV) and CVR Energy, Inc. (NYSE:CVI) are the two most active stocks in the Oil & Gas Refining & Marketing 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.
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 ANDV to grow earnings at a 25.05% annual rate over the next 5 years.
Profitability and Returns
Just, if not more, important than the growth rate is the quality of that growth. Growth can actual be harmful to investors if it comes at the cost of weak profitability and low returns. 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 6.25% for CVR Energy, Inc. (CVI). ANDV’s ROI is 8.50% while CVI has a ROI of 5.20%. The interpretation is that ANDV’s business generates a higher return on investment than CVI’s.
If there’s one thing investors care more about than earnings, it’s cash flow. ANDV’s free cash flow (“FCF”) per share for the trailing twelve months was -0.16. Comparatively, CVI’s free cash flow per share was +0.22. On a percent-of-sales basis, ANDV’s free cash flow was -0.1% while CVI converted 0.4% of its revenues into cash flow. This means that, for a given level of sales, CVI is able to generate more free cash flow for investors.
Liquidity and Financial Risk
Liquidity and leverage ratios are important because they reveal the financial health of a company. ANDV has a current ratio of 1.50 compared to 2.20 for CVI. This means that CVI can more easily cover its most immediate liabilities over the next twelve months. ANDV’s debt-to-equity ratio is 0.84 versus a D/E of 1.53 for CVI. CVI is therefore the more solvent of the two companies, and has lower financial risk.
ANDV trades at a forward P/E of 12.84, a P/B of 1.90, and a P/S of 0.54, compared to a forward P/E of 21.75, a P/B of 4.04, and a P/S of 0.52 for CVI. 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. ANDV is currently priced at a -11.89% to its one-year price target of 125.28. Comparatively, CVI is 86.63% relative to its price target of 19.00. This suggests that ANDV is the better investment over the next year.
The average investment recommendation on a scale of 1 to 5 (1 being a strong buy, 3 a hold, and 5 a sell) is 2.00 for ANDV and 3.00 for CVI, which implies that analysts are more bullish on the outlook for CVI.
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. ANDV has a beta of 1.55 and CVI’s beta is 1.75. ANDV’s shares are therefore the less volatile of the two stocks.
Insider Activity and Investor Sentiment
Analysts often look at short interest, or the percentage of a company’s float currently being shorted by investors, to aid in their outlook for a particular stock. ANDV has a short ratio of 2.16 compared to a short interest of 11.96 for CVI. This implies that the market is currently less bearish on the outlook for ANDV.
Andeavor (NYSE:ANDV) beats CVR Energy, Inc. (NYSE:CVI) on a total of 9 of the 14 factors compared between the two stocks. ANDV is growing fastly, generates a higher return on investment and has lower financial risk. In terms of valuation, ANDV is the cheaper of the two stocks on an earnings and book value, ANDV is more undervalued relative to its price target. Finally, ANDV has better sentiment signals based on short interest.