Finance

Dissecting the Numbers for Baker Hughes, a GE company (BHGE) and Graphic Packaging Holding Company (GPK)

Baker Hughes, a GE company (NYSE:BHGE) shares are up more than 7.65% this year and recently decreased -1.39% or -$0.48 to settle at $34.06. Graphic Packaging Holding Company (NYSE:GPK), on the other hand, is down -4.79% year to date as of 06/13/2018. It currently trades at $14.71 and has returned -1.08% during the past week.

Baker Hughes, a GE company (NYSE:BHGE) and Graphic Packaging Holding Company (NYSE:GPK) are the two most active stocks in the Oil & Gas Equipment & Services industry 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.

Growth

Companies that can consistently grow earnings at a high compound rate usually have the greatest potential to create value for shareholders in the long-run. Comparatively, GPK is expected to grow at a 24.49% annual rate. All else equal, GPK’s higher growth rate would imply a greater potential for capital appreciation.

Profitability and Returns

Growth in and of itself is not necessarily valuable, and it can even be harmful to shareholders if companies overinvest in unprofitable projects in pursuit of that growth. We will use EBITDA margin and Return on Investment (ROI), which adjust for differences in capital structure, as measure of profitability and return. EBITDA margin of 14.81% for Graphic Packaging Holding Company (GPK). BHGE’s ROI is -0.70% while GPK has a ROI of 7.10%. The interpretation is that GPK’s business generates a higher return on investment than BHGE’s.

Cash Flow



The value of a stock is simply the present value of its future free cash flows. BHGE’s free cash flow (“FCF”) per share for the trailing twelve months was +0.10. Comparatively, GPK’s free cash flow per share was -0.98. On a percent-of-sales basis, BHGE’s free cash flow was 0.24% while GPK converted -6.91% of its revenues into cash flow. This means that, for a given level of sales, BHGE is able to generate more free cash flow for investors.

Liquidity and Financial Risk

Liquidity and leverage ratios are important because they reveal the financial health of a company. BHGE has a current ratio of 2.00 compared to 1.80 for GPK. This means that BHGE can more easily cover its most immediate liabilities over the next twelve months. BHGE’s debt-to-equity ratio is 0.20 versus a D/E of 1.81 for GPK. GPK is therefore the more solvent of the two companies, and has lower financial risk.

Valuation

BHGE trades at a forward P/E of 21.19, a P/B of 0.38, and a P/S of 1.86, compared to a forward P/E of 13.90, a P/B of 2.67, and a P/S of 0.96 for GPK. BHGE is the cheaper of the two stocks on book value basis but is expensive in terms of P/E and P/S 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

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. BHGE is currently priced at a -9.54% to its one-year price target of 37.65. Comparatively, GPK is -18.41% relative to its price target of 18.03. This suggests that GPK 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. BHGE has a beta of 0.73 and GPK’s beta is 1.18. BHGE’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. BHGE has a short ratio of 5.38 compared to a short interest of 1.96 for GPK. This implies that the market is currently less bearish on the outlook for GPK.

Summary

Graphic Packaging Holding Company (NYSE:GPK) beats Baker Hughes, a GE company (NYSE:BHGE) on a total of 8 of the 14 factors compared between the two stocks. GPK has higher cash flow per share, is more profitable and generates a higher return on investment. In terms of valuation, GPK is the cheaper of the two stocks on an earnings and sales basis, GPK is more undervalued relative to its price target. Finally, GPK has better sentiment signals based on short interest.

Previous ArticleNext Article

Related Post

Should You Invest in Annaly Capital Management, In... Recent insider trends for Annaly Capital Management, Inc. (NYSE:NLY) have caught the attention of investors. Insider activity is often a strong indica...
Dissecting the Insider Trading Patterns of Eldorad... Recent insider trends for Eldorado Gold Corporation (NYSE:EGO) have caught the attention of investors. Analysts study insider data to get a sense of s...
What do Insider Trends Have to Say About Alibaba G... Recent insider trends for Alibaba Group Holding Limited (NYSE:BABA) have caught the attention of investors. Analysts monitor insider data to understan...
How Insiders and Institutions are Trading Morgan S... Recent insider trends for Morgan Stanley (NYSE:MS) have caught the attention of investors. Patters in insider activity can help analysts formulate an ...
What the Insider Data Suggests About Baytex Energy... Recent insider trends for Baytex Energy Corp. (NYSE:BTE) have caught the attention of investors. Insider data is useful because it can reveal what a c...