Earnings

Comparing The Kraft Heinz Company (KHC) and Cheniere Energy, Inc. (LNG)

 

The Kraft Heinz Company (NASDAQ:KHC) shares are down more than -13.36% this year and recently decreased -0.49% or -$0.33 to settle at $67.37. Cheniere Energy, Inc. (NYSE:LNG), on the other hand, is up 0.11% year to date as of 03/13/2018. It currently trades at $53.90 and has returned -1.46% during the past week.

The Kraft Heinz Company (NASDAQ:KHC) and Cheniere Energy, Inc. (NYSE:LNG) are the two most active stocks in the market based on today’s trading volumes. The market is clearly enthusiastic about both these stocks, but which is the better investment? To answer this, we will compare the two companies based on the strength of their growth, profitability, risk, returns, valuation, analyst recommendations, and insider trends.

Growth

Companies that can increase earnings at a high compound rate over time are attractive to investors. Analysts expect KHC to grow earnings at a 7.34% annual rate over the next 5 years. Comparatively, LNG is expected to grow at a -0.55% annual rate. All else equal, KHC’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 31.03% for Cheniere Energy, Inc. (LNG). KHC’s ROI is 5.40% while LNG has a ROI of 7.20%. The interpretation is that LNG’s business generates a higher return on investment than KHC’s.

Cash Flow 




If there’s one thing investors care more about than earnings, it’s cash flow. On a percent-of-sales basis, KHC’s free cash flow was 0% while LNG converted -3.78% of its revenues into cash flow. This means that, for a given level of sales, KHC is able to generate more free cash flow for investors.

Liquidity and Financial Risk

Liquidity and leverage ratios measure a company’s ability to meet short-term obligations and longer-term debts. KHC has a current ratio of 0.70 compared to 2.70 for LNG. This means that LNG can more easily cover its most immediate liabilities over the next twelve months.

Valuation

KHC trades at a forward P/E of 16.48, a P/B of 1.24, and a P/S of 3.12, compared to a forward P/E of 28.56, and a P/S of 2.28 for LNG. KHC is the cheaper of the two stocks on an earnings basis but is expensive in terms of P/B and P/S ratio. 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”. KHC is currently priced at a -18.08% to its one-year price target of 82.24. Comparatively, LNG is -15.9% relative to its price target of 64.09. This suggests that KHC 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 KHC and 1.80 for LNG, which implies that analysts are more bullish on the outlook for KHC.

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. KHC has a short ratio of 4.71 compared to a short interest of 6.65 for LNG. This implies that the market is currently less bearish on the outlook for KHC.

Summary

Cheniere Energy, Inc. (NYSE:LNG) beats The Kraft Heinz Company (NASDAQ:KHC) on a total of 7 of the 14 factors compared between the two stocks. LNG is growing fastly, generates a higher return on investment, higher liquidity and has lower financial risk. In terms of valuation, LNG is the cheaper of the two stocks on book value and sales basis, Finally, BUFF has better sentiment signals based on short interest.

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