Earnings

Critical Comparison: Cleveland-Cliffs Inc. (CLF) vs. Tahoe Resources Inc. (TAHO)

Cleveland-Cliffs Inc. (NYSE:CLF) shares are down more than -1.66% this year and recently increased 2.16% or $0.15 to settle at $7.09. Tahoe Resources Inc. (NYSE:TAHO), on the other hand, is down -19.00% year to date as of 02/13/2018. It currently trades at $3.88 and has returned -4.90% during the past week.

Cleveland-Cliffs Inc. (NYSE:CLF) and Tahoe Resources Inc. (NYSE:TAHO) are the two most active stocks in the Industrial Metals & Minerals industry based on today’s trading volumes. Investor interest in the two stocks is clearly very high, but which is the better investment? To answer this question, we will compare the two companies across growth, profitability, risk, and valuation metrics, and also examine their analyst ratings and insider activity trends.

Growth

The ability to consistently grow earnings at a high compound rate is a defining characteristic of the best companies for long-term investment. Comparatively, TAHO is expected to grow at a -2.50% annual rate. All else equal, CLF’s higher growth rate would imply a greater potential for capital appreciation.



Profitability and Returns

Growth isn’t very attractive to investors if companies are sacrificing profitability and shareholder returns to achieve that growth. We will use EBITDA margin and Return on Investment (ROI), which control for differences in capital structure between the two companies, to measure profitability and return. Cleveland-Cliffs Inc. (CLF) has an EBITDA margin of 15.7%. This suggests that CLF underlying business is more profitable

Cash Flow 




Cash is king when it comes to investing. CLF’s free cash flow (“FCF”) per share for the trailing twelve months was +0.19. Comparatively, TAHO’s free cash flow per share was -0.03. On a percent-of-sales basis, CLF’s free cash flow was 2.42% while TAHO converted -0% of its revenues into cash flow. This means that, for a given level of sales, CLF is able to generate more free cash flow for investors.

Valuation

CLF trades at a forward P/E of 8.08, and a P/S of 0.90, compared to a forward P/E of 9.70, a P/B of 0.46, and a P/S of 1.51 for TAHO. CLF 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”. CLF is currently priced at a -12.79% to its one-year price target of 8.13. Comparatively, TAHO is -42.94% relative to its price target of 6.80. This suggests that TAHO 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 CLF and 2.00 for TAHO, which implies that analysts are more bullish on the outlook for CLF.

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.CLF has a short ratio of 2.41 compared to a short interest of 2.84 for TAHO. This implies that the market is currently less bearish on the outlook for CLF.

Summary

Cleveland-Cliffs Inc. (NYSE:CLF) beats Tahoe Resources Inc. (NYSE:TAHO) on a total of 10 of the 14 factors compared between the two stocks. CLF is growing fastly, 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, CLF is the cheaper of the two stocks on an earnings, book value and sales basis, Finally, CLF has better sentiment signals based on short interest.

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