The Williams Companies, Inc. (NYSE:WMB) shares are down more than -16.07% this year and recently increased 1.75% or $0.44 to settle at $25.59. Santander Consumer USA Holdings Inc. (NYSE:SC), on the other hand, is down -16.22% year to date as of 04/16/2018. It currently trades at $15.60 and has returned -1.20% during the past week.
The Williams Companies, Inc. (NYSE:WMB) and Santander Consumer USA Holdings Inc. (NYSE:SC) are the two most active stocks in the Oil & Gas Pipelines 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.Growth
The ability to consistently grow earnings at a high compound rate is a defining characteristic of the best companies for long-term investment. Analysts expect WMB to grow earnings at a 10.00% annual rate over the next 5 years. Comparatively, SC is expected to grow at a 1.90% annual rate. All else equal, WMB’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 41.43% for Santander Consumer USA Holdings Inc. (SC). WMB’s ROI is 3.10% while SC has a ROI of 1.40%. The interpretation is that WMB’s business generates a higher return on investment than SC’s.Cash Flow
The amount of free cash flow available to investors is ultimately what determines the value of a stock. WMB’s free cash flow (“FCF”) per share for the trailing twelve months was -0.13. Comparatively, SC’s free cash flow per share was -3.32. On a percent-of-sales basis, WMB’s free cash flow was -1.34% while SC converted -17.03% of its revenues into cash flow. This means that, for a given level of sales, WMB is able to generate more free cash flow for investors.Liquidity and Financial Risk
WMB’s debt-to-equity ratio is 2.17 versus a D/E of 4.81 for SC. SC is therefore the more solvent of the two companies, and has lower financial risk.
WMB trades at a forward P/E of 25.21, a P/B of 2.19, and a P/S of 2.63, compared to a forward P/E of 6.71, a P/B of 0.87, and a P/S of 0.86 for SC. WMB 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
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. WMB is currently priced at a -26.44% to its one-year price target of 34.79. Comparatively, SC is -22.62% relative to its price target of 20.16. This suggests that WMB is the better investment over the next year.
Risk and Volatility
Analyst use beta to measure a stock’s volatility relative to the overall market. Stocks with a beta above 1 tend to have bigger swings in price than the market as a whole, the opposite being the case for stocks with a beta below 1. WMB has a beta of 1.40 and SC’s beta is 1.10. SC’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. WMB has a short ratio of 2.15 compared to a short interest of 2.30 for SC. This implies that the market is currently less bearish on the outlook for WMB.Summary
The Williams Companies, Inc. (NYSE:WMB) beats Santander Consumer USA Holdings Inc. (NYSE:SC) on a total of 10 of the 14 factors compared between the two stocks. WMB is growing fastly, 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. WMB is more undervalued relative to its price target. Finally, WMB has better sentiment signals based on short interest.