Finance

A Side-by-side Analysis of Enbridge Energy Partners, L.P. (EEP) and Sunrun Inc. (RUN)

Enbridge Energy Partners, L.P. (NYSE:EEP) shares are down more than -25.49% this year and recently increased 2.08% or $0.21 to settle at $10.29. Sunrun Inc. (NASDAQ:RUN), on the other hand, is up 84.07% year to date as of 05/17/2018. It currently trades at $10.86 and has returned -5.57% during the past week.

Enbridge Energy Partners, L.P. (NYSE:EEP) and Sunrun Inc. (NASDAQ:RUN) 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 EEP to grow earnings at a 14.20% annual rate over the next 5 years. Comparatively, RUN is expected to grow at a 8.77% annual rate. All else equal, EEP’s higher growth rate would imply a greater potential for capital appreciation.

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. Enbridge Energy Partners, L.P. (EEP) has an EBITDA margin of 91.1%. This suggests that EEP underlying business is more profitable EEP’s ROI is 12.90% while RUN has a ROI of -7.80%. The interpretation is that EEP’s business generates a higher return on investment than RUN’s.

Cash Flow



The value of a stock is simply the present value of its future free cash flows. On a percent-of-sales basis, EEP’s free cash flow was 0% while RUN converted -0.04% of its revenues into cash flow. This means that, for a given level of sales, EEP 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. EEP has a current ratio of 0.20 compared to 1.50 for RUN. This means that RUN can more easily cover its most immediate liabilities over the next twelve months. EEP’s debt-to-equity ratio is 4.68 versus a D/E of 1.64 for RUN. EEP is therefore the more solvent of the two companies, and has lower financial risk.

Valuation

EEP trades at a forward P/E of 16.08, a P/B of 2.75, and a P/S of 1.74, compared to a forward P/E of 9.37, a P/B of 1.25, and a P/S of 1.89 for RUN. EEP is the cheaper of the two stocks on sales basis but is expensive in terms of P/E and P/B 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”. EEP is currently priced at a -11.83% to its one-year price target of 11.67. Comparatively, RUN is -1.27% relative to its price target of 11.00. This suggests that EEP is the better investment over the next year.

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. EEP has a short ratio of 2.70 compared to a short interest of 5.78 for RUN. This implies that the market is currently less bearish on the outlook for EEP.

Summary




Enbridge Energy Partners, L.P. (NYSE:EEP) beats Sunrun Inc. (NASDAQ:RUN) on a total of 8 of the 14 factors compared between the two stocks. EEP is growing fastly, is more profitable, generates a higher return on investment, has higher cash flow per share and has a higher cash conversion rate. EEP is more undervalued relative to its price target. Finally, EEP has better sentiment signals based on short interest.

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