Seaspan Corporation (NYSE:SSW) shares are down more than -16.15% this year and recently decreased -1.39% or -$0.08 to settle at $5.66. Marathon Petroleum Corporation (NYSE:MPC), on the other hand, is up 4.99% year to date as of 03/12/2018. It currently trades at $69.27 and has returned 4.70% during the past week.
Seaspan Corporation (NYSE:SSW) and Marathon Petroleum Corporation (NYSE:MPC) are the two most active stocks in the market 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.
Companies that can consistently grow earnings at a high compound rate usually have the greatest potential to create value for shareholders in the long-run. Analysts expect SSW to grow earnings at a 4.29% annual rate over the next 5 years. Comparatively, MPC is expected to grow at a 30.25% annual rate. All else equal, MPC’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., compared to an EBITDA margin of 8.23% for Marathon Petroleum Corporation (MPC). SSW’s ROI is 6.00% while MPC has a ROI of 10.90%. The interpretation is that MPC’s business generates a higher return on investment than SSW’s.
If there’s one thing investors care more about than earnings, it’s cash flow. SSW’s free cash flow (“FCF”) per share for the trailing twelve months was -0.56. Comparatively, MPC’s free cash flow per share was -6.18. On a percent-of-sales basis, SSW’s free cash flow was -0.01% while MPC converted -3.94% of its revenues into cash flow. This means that, for a given level of sales, SSW is able to generate more free cash flow for investors.
Liquidity and Financial Risk
Liquidity and leverage ratios provide insight into the financial health of a company, and allow investors to determine the likelihood that the company will be able to continue operating as a going concern. SSW has a current ratio of 0.90 compared to 1.30 for MPC. This means that MPC can more easily cover its most immediate liabilities over the next twelve months. SSW’s debt-to-equity ratio is 1.59 versus a D/E of 0.92 for MPC. SSW is therefore the more solvent of the two companies, and has lower financial risk.
SSW trades at a forward P/E of 5.23, a P/B of 0.37, and a P/S of 0.87, compared to a forward P/E of 11.60, a P/B of 2.40, and a P/S of 0.45 for MPC. 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
Investors often compare a stock’s current price to an analyst price target to get a sense of the potential upside within the next year. SSW is currently priced at a -21.06% to its one-year price target of 7.17. Comparatively, MPC is -15.9% relative to its price target of 82.37. This suggests that SSW 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 3.10 for SSW and 2.00 for MPC, which implies that analysts are more bullish on the outlook for SSW.
Risk and Volatility
Beta is a metric that investors frequently use to analyze a stock’s systematic risk. A beta above 1 implies above average market volatility. Conversely, a stock with a beta below 1 is seen as less risky than the overall market. SSW has a beta of 0.61 and MPC’s beta is 1.48. SSW’s shares are therefore the less volatile of the two stocks.
Insider Activity and Investor Sentiment
Short interest is another tool that analysts use to gauge investor sentiment. It represents the percentage of a stock’s tradable shares that are being shorted. SSW has a short ratio of 4.63 compared to a short interest of 2.08 for MPC. This implies that the market is currently less bearish on the outlook for MPC.
Marathon Petroleum Corporation (NYSE:MPC) beats Seaspan Corporation (NYSE:SSW) on a total of 7 of the 14 factors compared between the two stocks. MPC is more profitable, generates a higher return on investment, higher liquidity and has lower financial risk. Finally, MPC has better sentiment signals based on short interest.