Berry Global Group, Inc. (NYSE:BERY) shares are down more than -6.60% this year and recently increased 0.87% or $0.47 to settle at $54.80. WestRock Company (NYSE:WRK), on the other hand, is up 0.09% year to date as of 02/12/2018. It currently trades at $63.27 and has returned -1.08% during the past week.
Berry Global Group, Inc. (NYSE:BERY) and WestRock Company (NYSE:WRK) 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.
One of the key things investors look for in a company is the ability to grow earnings at a high compound rate over time. Analysts expect BERY to grow earnings at a 13.17% annual rate over the next 5 years. Comparatively, WRK is expected to grow at a 16.00% annual rate. All else equal, WRK’s higher growth rate would imply a greater potential for capital appreciation.
Profitability and Returns
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., compared to an EBITDA margin of 13.93% for WestRock Company (WRK). BERY’s ROI is 9.20% while WRK has a ROI of 4.00%. The interpretation is that BERY’s business generates a higher return on investment than WRK’s.
Earnings don’t always accurately reflect the amount of cash that a company brings in. BERY’s free cash flow (“FCF”) per share for the trailing twelve months was +0.43. Comparatively, WRK’s free cash flow per share was +0.15. On a percent-of-sales basis, BERY’s free cash flow was 0.8% while WRK converted 0.26% of its revenues into cash flow. This means that, for a given level of sales, BERY is able to generate more free cash flow for investors.
Liquidity and Financial Risk
Liquidity and leverage ratios measure a company’s ability to meet short-term obligations and longer-term debts. BERY has a current ratio of 1.70 compared to 1.30 for WRK. This means that BERY can more easily cover its most immediate liabilities over the next twelve months. BERY’s debt-to-equity ratio is 4.73 versus a D/E of 0.58 for WRK. BERY is therefore the more solvent of the two companies, and has lower financial risk.
BERY trades at a forward P/E of 13.69, a P/B of 6.13, and a P/S of 0.97, compared to a forward P/E of 14.34, a P/B of 1.42, and a P/S of 1.05 for WRK. 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 isn’t a good investment if the stock is priced accurately. To get a sense of “value” we must compare the current price to some measure of intrinsic value such as a price target. BERY is currently priced at a -21.71% to its one-year price target of 70.00. Comparatively, WRK is -15.9% relative to its price target of 75.23. This suggests that BERY 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 1.80 for BERY and 2.10 for WRK, which implies that analysts are more bullish on the outlook for WRK.
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. BERY has a short ratio of 1.47 compared to a short interest of 2.28 for WRK. This implies that the market is currently less bearish on the outlook for BERY.
Berry Global Group, Inc. (NYSE:BERY) beats WestRock Company (NYSE:WRK) on a total of 10 of the 14 factors compared between the two stocks. BERY 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, BERY is the cheaper of the two stocks on an earnings and sales basis, BERY is more undervalued relative to its price target. Finally, BERY has better sentiment signals based on short interest.