Markets

A Side-by-side Analysis of CONE Midstream Partners LP (CNNX) and NuStar GP Holdings, LLC (NSH)

CONE Midstream Partners LP (NYSE:CNNX) and NuStar GP Holdings, LLC (NYSE:NSH) are the two most active stocks in the Oil & Gas Pipelines 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

One of the key things investors look for in a company is the ability to grow earnings at a high compound rate over time. Analysts expect CNNX to grow earnings at a 13.00% annual rate over the next 5 years. Comparatively, NSH is expected to grow at a 17.90% annual rate. All else equal, NSH’s higher growth rate would imply a greater potential for capital appreciation.

Cash Flow 



The amount of free cash flow available to investors is ultimately what determines the value of a stock. CNNX’s free cash flow (“FCF”) per share for the trailing twelve months was +0.18. Comparatively, NSH’s free cash flow per share was +0.05. On a percent-of-sales basis, CNNX’s free cash flow was 0% while NSH converted 0% of its revenues into cash flow. This means that, for a given level of sales, CNNX is able to generate more free cash flow for investors.

Liquidity and Financial Risk

Analysts look at liquidity and leverage ratios to assess how easily a company can cover its liabilities. CNNX has a current ratio of 1.40 compared to 0.00 for NSH. This means that CNNX can more easily cover its most immediate liabilities over the next twelve months. CNNX’s debt-to-equity ratio is 0.43 versus a D/E of 0.16 for NSH. CNNX is therefore the more solvent of the two companies, and has lower financial risk.




Valuation

CNNX trades at a forward P/E of 9.80, a P/B of 2.99, and a P/S of 4.66, compared to a forward P/E of 13.99, a P/B of 3.36, and a P/S of 17.11 for NSH. CNNX is the cheaper 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

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”. CNNX is currently priced at a -27.84% to its one-year price target of $24.35. Comparatively, NSH is -24.29% relative to its price target of $27.67. This suggests that CNNX is the better investment over the next year.

The average investment recommendation on a scale of 1 to 5 (1 being a strong buy, 3 a hold, and 5 a sell) is 1.90 for CNNX and 2.80 for NSH, which implies that analysts are more bullish on the outlook for NSH.

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. NSH’s beta is 1.18.

Insider Activity and Investor Sentiment

Short interest, or the percentage of a stock’s tradable shares currently being shorted, is another metric investors use to get a pulse on sentiment. CNNX has a short ratio of 1.95 compared to a short interest of 7.42 for NSH. This implies that the market is currently less bearish on the outlook for CNNX.

Summary

CONE Midstream Partners LP (NYSE:CNNX) beats NuStar GP Holdings, LLC (NYSE:NSH) on a total of 9 of the 12 factors compared between the two stocks. CNNX is more profitable, has higher cash flow per share and higher liquidity. In terms of valuation, CNNX is the cheaper of the two stocks on an earnings, book value and sales basis, CNNX is more undervalued relative to its price target. Finally, CNNX has better sentiment signals based on short interest.

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