Plains All American Pipeline, L.P. (NYSE:PAA) shares are up more than 21.85% this year and recently decreased -1.41% or -$0.36 to settle at $25.15. Andeavor Logistics LP (NYSE:ANDX), on the other hand, is down -4.83% year to date as of 06/13/2018. It currently trades at $43.96 and has returned 1.17% during the past week.
Plains All American Pipeline, L.P. (NYSE:PAA) and Andeavor Logistics LP (NYSE:ANDX) 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 grow earnings at a compound rate over time is a crucial determinant of investment value. Analysts expect PAA to grow earnings at a 12.80% annual rate over the next 5 years. Comparatively, ANDX is expected to grow at a 14.55% annual rate. All else equal, ANDX’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. Plains All American Pipeline, L.P. (PAA) has an EBITDA margin of 6.65%. This suggests that PAA underlying business is more profitable PAA’s ROI is 10.40% while ANDX has a ROI of 9.70%. The interpretation is that PAA’s business generates a higher return on investment than ANDX’s.Cash Flow
The value of a stock is simply the present value of its future free cash flows. PAA’s free cash flow (“FCF”) per share for the trailing twelve months was +0.05. Comparatively, ANDX’s free cash flow per share was -0.29. On a percent-of-sales basis, PAA’s free cash flow was 0.14% while ANDX converted -1.96% of its revenues into cash flow. This means that, for a given level of sales, PAA 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. PAA has a current ratio of 0.90 compared to 0.90 for ANDX. This means that PAA can more easily cover its most immediate liabilities over the next twelve months. PAA’s debt-to-equity ratio is 1.12 versus a D/E of 1.46 for ANDX. ANDX is therefore the more solvent of the two companies, and has lower financial risk.Valuation
PAA trades at a forward P/E of 13.54, a P/B of 2.09, and a P/S of 0.65, compared to a forward P/E of 12.85, a P/B of 3.36, and a P/S of 2.87 for ANDX. 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”. PAA is currently priced at a -1.95% to its one-year price target of 25.65. Comparatively, ANDX is -11.37% relative to its price target of 49.60. This suggests that ANDX is the better investment over the next year.
Risk and Volatility
Beta is a metric that investors frequently use to analyze a stock’s systematic risk. A beta above 1 implies above average market volatility. Conversely, a stock with a beta below 1 is seen as less risky than the overall market. PAA has a beta of 0.75 and ANDX’s beta is 1.18. PAA’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. PAA has a short ratio of 3.77 compared to a short interest of 2.34 for ANDX. This implies that the market is currently less bearish on the outlook for ANDX.Summary
Plains All American Pipeline, L.P. (NYSE:PAA) beats Andeavor Logistics LP (NYSE:ANDX) on a total of 10 of the 14 factors compared between the two stocks. PAA 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. In terms of valuation, PAA is the cheaper of the two stocks on book value and sales basis, Finally, CMI has better sentiment signals based on short interest.