PBF Energy Inc. (NYSE:PBF) shares are down more than -16.33% this year and recently increased 1.54% or $0.45 to settle at $29.66. Andeavor (NYSE:ANDV), on the other hand, is down -14.61% year to date as of 02/12/2018. It currently trades at $97.63 and has returned -1.67% during the past week.
PBF Energy Inc. (NYSE:PBF) and Andeavor (NYSE:ANDV) are the two most active stocks in the Oil & Gas Refining & Marketing industry based on today’s trading volumes. We will compare the two companies based on the strength of various metrics, including growth, profitability, risk, return, and valuation to determine if one is a better investment than the other.
The ability to consistently grow earnings at a high compound rate is a defining characteristic of the best companies for long-term investment. Analysts expect PBF to grow earnings at a 10.00% annual rate over the next 5 years. Comparatively, ANDV is expected to grow at a 34.64% annual rate. All else equal, ANDV’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. PBF Energy Inc. (PBF) has an EBITDA margin of 4.31%. This suggests that PBF underlying business is more profitable PBF’s ROI is 8.70% while ANDV has a ROI of 8.50%. The interpretation is that PBF’s business generates a higher return on investment than ANDV’s.
The value of a stock is simply the present value of its future free cash flows. PBF’s free cash flow (“FCF”) per share for the trailing twelve months was +2.33. Comparatively, ANDV’s free cash flow per share was -0.16. On a percent-of-sales basis, PBF’s free cash flow was 1.61% while ANDV converted -0.1% of its revenues into cash flow. This means that, for a given level of sales, PBF 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. PBF has a current ratio of 1.50 compared to 1.50 for ANDV. This means that PBF can more easily cover its most immediate liabilities over the next twelve months. PBF’s debt-to-equity ratio is 1.02 versus a D/E of 0.84 for ANDV. PBF is therefore the more solvent of the two companies, and has lower financial risk.
PBF trades at a forward P/E of 8.78, a P/B of 1.54, and a P/S of 0.16, compared to a forward P/E of 9.56, a P/B of 1.68, and a P/S of 0.49 for ANDV. PBF 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
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”. PBF is currently priced at a -22.96% to its one-year price target of 38.50. Comparatively, ANDV is -30.26% relative to its price target of 140.00. 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 2.70 for PBF and 2.00 for ANDV, which implies that analysts are more bullish on the outlook for PBF.
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. PBF has a beta of 1.17 and ANDV’s beta is 1.35. PBF’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.PBF has a short ratio of 4.49 compared to a short interest of 1.73 for ANDV. This implies that the market is currently less bearish on the outlook for ANDV.
PBF Energy Inc. (NYSE:PBF) beats Andeavor (NYSE:ANDV) on a total of 9 of the 14 factors compared between the two stocks. PBF 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, PBF is the cheaper of the two stocks on an earnings, book value and sales basis, Finally, BERY has better sentiment signals based on short interest.