Crown Holdings, Inc. (NYSE:CCK) shares are up more than 0.57% this year and recently decreased -0.42% or -$0.24 to settle at $56.57. Ball Corporation (NYSE:BLL), on the other hand, is up 1.72% year to date as of 01/09/2018. It currently trades at $38.50 and has returned -0.34% during the past week.
Crown Holdings, Inc. (NYSE:CCK) and Ball Corporation (NYSE:BLL) are the two most active stocks in the Packaging & Containers 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 CCK to grow earnings at a 6.88% annual rate over the next 5 years. Comparatively, BLL is expected to grow at a 11.67% annual rate. All else equal, BLL’s higher growth rate would imply a greater potential for capital appreciation.
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., compared to an EBITDA margin of 8.42% for Ball Corporation (BLL). CCK’s ROI is 13.80% while BLL has a ROI of 5.40%. The interpretation is that CCK’s business generates a higher return on investment than BLL’s.
If there’s one thing investors care more about than earnings, it’s cash flow. CCK’s free cash flow (“FCF”) per share for the trailing twelve months was +2.78. Comparatively, BLL’s free cash flow per share was +0.79. On a percent-of-sales basis, CCK’s free cash flow was 4.51% while BLL converted 3.05% of its revenues into cash flow. This means that, for a given level of sales, CCK is able to generate more free cash flow for investors.
Liquidity and Financial Risk
Balance sheet risk is one of the biggest factors to consider before investing. CCK has a current ratio of 1.00 compared to 1.00 for BLL. This means that CCK can more easily cover its most immediate liabilities over the next twelve months. CCK’s debt-to-equity ratio is 6.56 versus a D/E of 2.14 for BLL. CCK is therefore the more solvent of the two companies, and has lower financial risk.
CCK trades at a forward P/E of 12.77, a P/B of 9.49, and a P/S of 0.90, compared to a forward P/E of 16.62, a P/B of 3.82, and a P/S of 1.25 for BLL. 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”. CCK is currently priced at a -15.34% to its one-year price target of 66.82. Comparatively, BLL is -14.92% relative to its price target of 45.25. This suggests that CCK 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 2.30 for CCK and 2.20 for BLL, which implies that analysts are more bullish on the outlook for CCK.
Risk and Volatility
Analyst use beta to measure a stock’s volatility relative to the overall market. Stocks with a beta above 1 tend to have bigger swings in price than the market as a whole, the opposite being the case for stocks with a beta below 1. CCK has a beta of 1.46 and BLL’s beta is 1.01. BLL’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. CCK has a short ratio of 1.83 compared to a short interest of 7.56 for BLL. This implies that the market is currently less bearish on the outlook for CCK.
Crown Holdings, Inc. (NYSE:CCK) beats Ball Corporation (NYSE:BLL) on a total of 9 of the 14 factors compared between the two stocks. CCK is more profitable, generates a higher return on investment, has higher cash flow per share, has a higher cash conversion rate and higher liquidity. In terms of valuation, CCK is the cheaper of the two stocks on an earnings and sales basis, CCK is more undervalued relative to its price target. Finally, CCK has better sentiment signals based on short interest.