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Critical Comparison: Vornado Realty Trust (VNO) vs. Westlake Chemical Corporation (WLK)

Vornado Realty Trust (NYSE:VNO) shares are down more than -8.69% this year and recently decreased -1.80% or -$1.31 to settle at $71.39. Westlake Chemical Corporation (NYSE:WLK), on the other hand, is up 5.54% year to date as of 06/13/2018. It currently trades at $112.43 and has returned -5.53% during the past week.

Vornado Realty Trust (NYSE:VNO) and Westlake Chemical Corporation (NYSE:WLK) are the two most active stocks in the REIT – Diversified industry based on today’s trading volumes. Investor interest in the two stocks is clearly very high, but which is the better investment? To answer this question, we will compare the two companies across growth, profitability, risk, and valuation metrics, and also examine their analyst ratings and insider activity trends.

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 VNO to grow earnings at a 17.33% annual rate over the next 5 years. Comparatively, WLK is expected to grow at a 13.53% annual rate. All else equal, VNO’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 24.64% for Westlake Chemical Corporation (WLK). VNO’s ROI is 4.40% while WLK has a ROI of 10.30%. The interpretation is that WLK’s business generates a higher return on investment than VNO’s.

Cash Flow



The value of a stock is simply the present value of its future free cash flows. VNO’s free cash flow (“FCF”) per share for the trailing twelve months was +0.71. Comparatively, WLK’s free cash flow per share was +0.34. On a percent-of-sales basis, VNO’s free cash flow was 6.48% while WLK converted 0.55% of its revenues into cash flow. This means that, for a given level of sales, VNO is able to generate more free cash flow for investors.

Liquidity and Financial Risk

VNO’s debt-to-equity ratio is 2.82 versus a D/E of 0.61 for WLK. VNO is therefore the more solvent of the two companies, and has lower financial risk.

Valuation

VNO trades at a forward P/E of 50.31, a P/B of 3.91, and a P/S of 6.45, compared to a forward P/E of 11.80, a P/B of 2.83, and a P/S of 1.79 for WLK. VNO 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 is not necessarily a value stock. Most of the time, a stock is cheap for good reason. A stock only has value if the current price is substantially below the price at which it should trade in the future. VNO is currently priced at a -8.57% to its one-year price target of 78.08. Comparatively, WLK is -6.84% relative to its price target of 120.68. This suggests that VNO 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. VNO has a beta of 0.93 and WLK’s beta is 1.57. VNO’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. VNO has a short ratio of 3.81 compared to a short interest of 4.83 for WLK. This implies that the market is currently less bearish on the outlook for VNO.

Summary




Westlake Chemical Corporation (NYSE:WLK) beats Vornado Realty Trust (NYSE:VNO) on a total of 7 of the 14 factors compared between the two stocks. WLK is growing fastly, generates a higher return on investment, higher liquidity and has lower financial risk. In terms of valuation, WLK is the cheaper of the two stocks on an earnings, book value and sales basis, Finally, PCAR has better sentiment signals based on short interest.

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