Delek US Holdings, Inc. (NYSE:DK) shares are down more than -8.01% this year and recently increased 3.41% or $1.06 to settle at $32.14. CVR Refining, LP (NYSE:CVRR), on the other hand, is down -8.76% year to date as of 02/12/2018. It currently trades at $15.10 and has returned -1.31% during the past week.
Delek US Holdings, Inc. (NYSE:DK) and CVR Refining, LP (NYSE:CVRR) are the two most active stocks in the Oil & Gas Refining & Marketing 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.
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 5.33% for CVR Refining, LP (CVRR). DK’s ROI is -6.70% while CVRR has a ROI of 4.20%. The interpretation is that CVRR’s business generates a higher return on investment than DK’s.
The value of a stock is simply the present value of its future free cash flows. DK’s free cash flow (“FCF”) per share for the trailing twelve months was +0.42. Comparatively, CVRR’s free cash flow per share was +0.30. On a percent-of-sales basis, DK’s free cash flow was 0.84% while CVRR converted 1% of its revenues into cash flow. This means that, for a given level of sales, CVRR is able to generate more free cash flow for investors.
Liquidity and Financial Risk
Liquidity and leverage ratios provide insight into the financial health of a company, and allow investors to determine the likelihood that the company will be able to continue operating as a going concern. DK has a current ratio of 1.10 compared to 1.90 for CVRR. This means that CVRR can more easily cover its most immediate liabilities over the next twelve months. DK’s debt-to-equity ratio is 0.96 versus a D/E of 0.38 for CVRR. DK is therefore the more solvent of the two companies, and has lower financial risk.
DK trades at a forward P/E of 13.27, a P/B of 1.75, and a P/S of 0.45, compared to a forward P/E of 8.87, a P/B of 1.58, and a P/S of 0.43 for CVRR. DK is the expensive 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
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. DK is currently priced at a -23.2% to its one-year price target of 41.85. Comparatively, CVRR is -0.26% relative to its price target of 15.14. This suggests that DK 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 1.90 for DK and 2.90 for CVRR, which implies that analysts are more bullish on the outlook for CVRR.
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. DK has a beta of 1.59 and CVRR’s beta is 1.29. CVRR’s shares are therefore the less volatile of the two stocks.
Insider Activity and Investor Sentiment
Short interest, or the percentage of a stock’s tradable shares currently being shorted, is another metric investors use to get a pulse on sentiment.DK has a short ratio of 5.36 compared to a short interest of 2.26 for CVRR. This implies that the market is currently less bearish on the outlook for CVRR.
CVR Refining, LP (NYSE:CVRR) beats Delek US Holdings, Inc. (NYSE:DK) on a total of 10 of the 14 factors compared between the two stocks. CVRR has higher cash flow per share, generates a higher return on investment, has a higher cash conversion rate, higher liquidity and has lower financial risk. In terms of valuation, CVRR is the cheaper of the two stocks on an earnings, book value and sales basis, Finally, CVRR has better sentiment signals based on short interest.