Boardwalk Pipeline Partners, LP (NYSE:BWP) shares are down more than -20.60% this year and recently decreased -1.35% or -$0.14 to settle at $10.25. Enbridge Energy Partners, L.P. (NYSE:EEP), on the other hand, is down -25.71% year to date as of 06/13/2018. It currently trades at $10.26 and has returned 3.12% during the past week.
Boardwalk Pipeline Partners, LP (NYSE:BWP) and Enbridge Energy Partners, L.P. (NYSE:EEP) are the two most active stocks in the Oil & Gas Pipelines industry based on today’s trading volumes. We will compare the two companies based on the strength of various metrics, including growth, profitability, risk, return, and valuation to determine if one is a better investment than the other.Growth
The ability to grow earnings at a compound rate over time is a crucial determinant of investment value. Analysts expect BWP to grow earnings at a 7.40% annual rate over the next 5 years. Comparatively, EEP is expected to grow at a 14.20% 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. , compared to an EBITDA margin of 91.1% for Enbridge Energy Partners, L.P. (EEP). BWP’s ROI is 5.60% while EEP has a ROI of 12.90%. The interpretation is that EEP’s business generates a higher return on investment than BWP’s.Cash Flow
The value of a stock is simply the present value of its future free cash flows. BWP’s free cash flow (“FCF”) per share for the trailing twelve months was +0.06. Comparatively, EEP’s free cash flow per share was +0.03. On a percent-of-sales basis, BWP’s free cash flow was 1.13% while EEP converted 0.4% of its revenues into cash flow. This means that, for a given level of sales, BWP 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. BWP has a current ratio of 0.80 compared to 0.20 for EEP. This means that BWP can more easily cover its most immediate liabilities over the next twelve months. BWP’s debt-to-equity ratio is 0.79 versus a D/E of 4.68 for EEP. EEP is therefore the more solvent of the two companies, and has lower financial risk.Valuation
BWP trades at a forward P/E of 9.71, a P/B of 0.55, and a P/S of 2.00, compared to a forward P/E of 15.02, a P/B of 2.74, and a P/S of 1.83 for EEP. 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. BWP is currently priced at a -24.07% to its one-year price target of 13.50. Comparatively, EEP is -8.23% relative to its price target of 11.18. This suggests that BWP is the better investment over the next year.
Risk and Volatility
Beta is an important measure that gives investors a sense of the market risk associated with a particular stock. A beta above 1 signals above average market risk, while a beta below 1 implies below average volatility. BWP has a beta of 0.66 and EEP’s beta is 1.32. BWP’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. BWP has a short ratio of 2.17 compared to a short interest of 2.85 for EEP. This implies that the market is currently less bearish on the outlook for BWP.Summary
Boardwalk Pipeline Partners, LP (NYSE:BWP) beats Enbridge Energy Partners, L.P. (NYSE:EEP) on a total of 10 of the 14 factors compared between the two stocks. BWP has higher cash flow per share, has a higher cash conversion rate, higher liquidity and has lower financial risk. In terms of valuation, BWP is the cheaper of the two stocks on an earnings and book value, BWP is more undervalued relative to its price target. Finally, BWP has better sentiment signals based on short interest.