Pioneer Natural Resources Company (NYSE:PXD) shares are down more than -0.39% this year and recently increased 0.67% or $1.14 to settle at $172.17. California Resources Corporation (NYSE:CRC), on the other hand, is down -5.81% year to date as of 02/13/2018. It currently trades at $18.31 and has returned -12.01% during the past week.
Pioneer Natural Resources Company (NYSE:PXD) and California Resources Corporation (NYSE:CRC) are the two most active stocks in the Independent Oil & Gas industry based on today’s trading volumes. To determine if one is a better investment than the other, we will compare the two companies’ growth, profitability, risk, return, and valuation characteristics, as well as their analyst ratings and sentiment signals.
The ability to grow earnings at a compound rate over time is a crucial determinant of investment value. Analysts expect PXD to grow earnings at a 38.42% annual rate over the next 5 years.
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. , compared to an EBITDA margin of 42.99% for California Resources Corporation (CRC). PXD’s ROI is -1.60% while CRC has a ROI of 16.60%. The interpretation is that CRC’s business generates a higher return on investment than PXD’s.
If there’s one thing investors care more about than earnings, it’s cash flow. On a percent-of-sales basis, PXD’s free cash flow was 0% while CRC converted 0.39% of its revenues into cash flow. This means that, for a given level of sales, CRC 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. PXD has a current ratio of 1.70 compared to 0.60 for CRC. This means that PXD can more easily cover its most immediate liabilities over the next twelve months.
PXD trades at a forward P/E of 22.53, a P/B of 2.76, and a P/S of 5.07, compared to a P/S of 0.38 for CRC. PXD 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
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”. PXD is currently priced at a -18.79% to its one-year price target of 212.00. Comparatively, CRC is -25.51% relative to its price target of 24.58. This suggests that CRC 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 PXD and 2.70 for CRC, which implies that analysts are more bullish on the outlook for CRC.
Insider Activity and Investor Sentiment
The analysis of insider buying and selling trends can be extended to the aggregate level. Short interest, which represents the percentage of a stock’s tradable shares currently being shorted, captures what the market as a whole feels about a stock. PXD has a short ratio of 2.89 compared to a short interest of 5.40 for CRC. This implies that the market is currently less bearish on the outlook for PXD.
California Resources Corporation (NYSE:CRC) beats Pioneer Natural Resources Company (NYSE:PXD) on a total of 10 of the 14 factors compared between the two stocks. CRC is growing fastly, generates a higher return on investment, has higher cash flow per share, has a higher cash conversion rate and has lower financial risk. In terms of valuation, CRC is the cheaper of the two stocks on an earnings, book value and sales basis, CRC is more undervalued relative to its price target. Finally, UPL has better sentiment signals based on short interest.