Sealed Air Corporation (NYSE:SEE) shares are down more than -13.75% this year and recently increased 2.06% or $0.86 to settle at $42.52. Ball Corporation (NYSE:BLL), on the other hand, is down -0.85% year to date as of 02/12/2018. It currently trades at $37.53 and has returned 2.79% during the past week.
Sealed Air Corporation (NYSE:SEE) and Ball Corporation (NYSE:BLL) are the two most active stocks in the Packaging & Containers 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.
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 SEE to grow earnings at a 10.70% annual rate over the next 5 years. Comparatively, BLL is expected to grow at a 10.23% annual rate. All else equal, SEE’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 8.42% for Ball Corporation (BLL). SEE’s ROI is 14.60% while BLL has a ROI of 5.40%. The interpretation is that SEE’s business generates a higher return on investment than BLL’s.
The amount of free cash flow available to investors is ultimately what determines the value of a stock. SEE’s free cash flow (“FCF”) per share for the trailing twelve months was -0.11. Comparatively, BLL’s free cash flow per share was +1.52. On a percent-of-sales basis, SEE’s free cash flow was -0.29% while BLL converted 5.87% of its revenues into cash flow. This means that, for a given level of sales, BLL 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. SEE has a current ratio of 1.70 compared to 1.00 for BLL. This means that SEE can more easily cover its most immediate liabilities over the next twelve months. SEE’s debt-to-equity ratio is 4.35 versus a D/E of 2.14 for BLL. SEE is therefore the more solvent of the two companies, and has lower financial risk.
SEE trades at a forward P/E of 14.66, a P/B of 10.45, and a P/S of 1.76, compared to a forward P/E of 13.64, a P/B of 3.73, and a P/S of 1.21 for BLL. SEE 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
Just because a stock is cheaper doesn’t mean there’s more value to be had. In order to assess value we need to compare the current price to where it’s likely to trade in the future. SEE is currently priced at a -17.5% to its one-year price target of 51.54. Comparatively, BLL is -17.3% relative to its price target of 45.38. This suggests that SEE 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 2.40 for SEE and 2.00 for BLL, which implies that analysts are more bullish on the outlook for SEE.
Risk and Volatility
No discussion on value is complete without taking into account risk. Analysts use a stock’s beta, which measures the volatility of a stock compared to the overall market, to measure systematic risk. A stock with a beta above 1 is more volatile than the market. Conversely, a beta below 1 implies a below average level of risk. SEE has a beta of 1.13 and BLL’s beta is 0.81. BLL’s shares are therefore the less volatile of the two stocks.
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. SEE has a short ratio of 4.09 compared to a short interest of 5.54 for BLL. This implies that the market is currently less bearish on the outlook for SEE.
Ball Corporation (NYSE:BLL) beats Sealed Air Corporation (NYSE:SEE) on a total of 8 of the 14 factors compared between the two stocks. BLL is growing fastly, has a higher cash conversion rate and has lower financial risk. In terms of valuation, BLL is the cheaper of the two stocks on an earnings, book value and sales basis, Finally, KS has better sentiment signals based on short interest.