Murphy Oil Corporation (NYSE:MUR) shares are down more than -15.59% this year and recently decreased -3.99% or -$1.09 to settle at $26.21. Carrizo Oil & Gas, Inc. (NASDAQ:CRZO), on the other hand, is down -13.96% year to date as of 02/13/2018. It currently trades at $18.31 and has returned -4.78% during the past week.
Murphy Oil Corporation (NYSE:MUR) and Carrizo Oil & Gas, Inc. (NASDAQ:CRZO) are the two most active stocks in the Independent Oil & Gas 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.
The ability to consistently grow earnings at a high compound rate is a defining characteristic of the best companies for long-term investment. Comparatively, CRZO is expected to grow at a 20.00% annual rate. All else equal, CRZO’s higher growth rate would imply a greater potential for capital appreciation.
Profitability and Returns
Growth in and of itself is not necessarily valuable, and it can even be harmful to shareholders if companies overinvest in unprofitable projects in pursuit of that growth. We will use EBITDA margin and Return on Investment (ROI), which adjust for differences in capital structure, as measure of profitability and return. , compared to an EBITDA margin of 53.17% for Carrizo Oil & Gas, Inc. (CRZO). MUR’s ROI is -1.10% while CRZO has a ROI of -40.40%. The interpretation is that MUR’s business generates a higher return on investment than CRZO’s.
Earnings don’t always accurately reflect the amount of cash that a company brings in. MUR’s free cash flow (“FCF”) per share for the trailing twelve months was -0.21. Comparatively, CRZO’s free cash flow per share was -7.94. On a percent-of-sales basis, MUR’s free cash flow was -1.63% while CRZO converted -0.15% of its revenues into cash flow. This means that, for a given level of sales, CRZO is able to generate more free cash flow for investors.
Liquidity and Financial Risk
Analysts look at liquidity and leverage ratios to assess how easily a company can cover its liabilities. MUR has a current ratio of 1.70 compared to 0.30 for CRZO. This means that MUR can more easily cover its most immediate liabilities over the next twelve months. MUR’s debt-to-equity ratio is 0.59 versus a D/E of 4.38 for CRZO. CRZO is therefore the more solvent of the two companies, and has lower financial risk.
MUR trades at a forward P/E of 28.96, a P/B of 0.91, and a P/S of 2.19, compared to a forward P/E of 6.32, a P/B of 3.81, and a P/S of 2.24 for CRZO. 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. MUR is currently priced at a -24.25% to its one-year price target of 34.60. Comparatively, CRZO is -39.13% relative to its price target of 30.08. This suggests that CRZO 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 2.90 for MUR and 2.10 for CRZO, which implies that analysts are more bullish on the outlook for MUR.
Risk and Volatility
Beta is an important measure that gives investors a sense of the market risk associated with a particular stock. A beta above 1 signals above average market risk, while a beta below 1 implies below average volatility. MUR has a beta of 2.21 and CRZO’s beta is 1.95. CRZO’s shares are therefore the less volatile of the two stocks.
Insider Activity and Investor Sentiment
Analysts often look at short interest, or the percentage of a company’s float currently being shorted by investors, to aid in their outlook for a particular stock. MUR has a short ratio of 10.86 compared to a short interest of 4.22 for CRZO. This implies that the market is currently less bearish on the outlook for CRZO.
Carrizo Oil & Gas, Inc. (NASDAQ:CRZO) beats Murphy Oil Corporation (NYSE:MUR) on a total of 7 of the 14 factors compared between the two stocks. CRZO is more profitable and has a higher cash conversion rate. CRZO is more undervalued relative to its price target. Finally, CRZO has better sentiment signals based on short interest.