Weyerhaeuser Company (NYSE:WY) shares are up more than 0.37% this year and recently decreased -0.39% or -$0.14 to settle at $35.39. Juniper Networks, Inc. (NYSE:JNPR), on the other hand, is down -10.81% year to date as of 03/20/2018. It currently trades at $25.42 and has returned -3.75% during the past week.
Weyerhaeuser Company (NYSE:WY) and Juniper Networks, Inc. (NYSE:JNPR) 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.
The ability to grow earnings at a compound rate over time is a crucial determinant of investment value. Analysts expect WY to grow earnings at a 5.00% annual rate over the next 5 years. Comparatively, JNPR is expected to grow at a 8.18% annual rate. All else equal, JNPR’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., compared to an EBITDA margin of 20.64% for Juniper Networks, Inc. (JNPR). WY’s ROI is 6.80% while JNPR has a ROI of 9.30%. The interpretation is that JNPR’s business generates a higher return on investment than WY’s.
The amount of free cash flow available to investors is ultimately what determines the value of a stock. WY’s free cash flow (“FCF”) per share for the trailing twelve months was -0.06. Comparatively, JNPR’s free cash flow per share was +0.33. On a percent-of-sales basis, WY’s free cash flow was -0.63% while JNPR converted 2.26% of its revenues into cash flow. This means that, for a given level of sales, JNPR 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. WY has a current ratio of 1.50 compared to 2.40 for JNPR. This means that JNPR can more easily cover its most immediate liabilities over the next twelve months. WY’s debt-to-equity ratio is 0.73 versus a D/E of 0.46 for JNPR. WY is therefore the more solvent of the two companies, and has lower financial risk.
WY trades at a forward P/E of 23.66, a P/B of 3.00, and a P/S of 3.70, compared to a forward P/E of 11.83, a P/B of 2.01, and a P/S of 1.89 for JNPR. WY 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
A cheap stock isn’t a good investment if the stock is priced accurately. To get a sense of “value” we must compare the current price to some measure of intrinsic value such as a price target. WY is currently priced at a -5.1% to its one-year price target of 37.29. Comparatively, JNPR is -3.82% relative to its price target of 26.43. This suggests that WY 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 2.10 for WY and 2.90 for JNPR, which implies that analysts are more bullish on the outlook for JNPR.
Risk and Volatility
To gauge the market risk of a particular stock, investors use beta. Stocks with a beta above 1 are more volatile than the market as a whole. Conversely, a beta below 1 implies below average systematic risk. WY has a beta of 1.39 and JNPR’s beta is 0.94. JNPR’s shares are therefore the less volatile of the two stocks.
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. WY has a short ratio of 3.36 compared to a short interest of 3.34 for JNPR. This implies that the market is currently less bearish on the outlook for JNPR.
Juniper Networks, Inc. (NYSE:JNPR) beats Weyerhaeuser Company (NYSE:WY) on a total of 11 of the 14 factors compared between the two stocks. JNPR is more profitable, generates a higher return on investment, has higher cash flow per share, has a higher cash conversion rate, higher liquidity and has lower financial risk. In terms of valuation, JNPR is the cheaper of the two stocks on an earnings, book value and sales basis, Finally, JNPR has better sentiment signals based on short interest.