CVR Refining, LP (NYSE:CVRR) and Ferrellgas Partners, L.P. (NYSE:FGP) are the two most active stocks in the Oil & Gas Refining & Marketing 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.
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 CVRR to grow earnings at a 25.76% annual rate over the next 5 years. Comparatively, FGP is expected to grow at a 34.20% annual rate. All else equal, FGP’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 Return on Investment (ROI), which adjust for differences in capital structure, as measure of profitability and return. CVRR’s ROI is 4.20% while FGP has a ROI of -35.00%. The interpretation is that CVRR’s business generates a higher return on investment than FGP’s.
If there’s one thing investors care more about than earnings, it’s cash flow. CVRR’s free cash flow (“FCF”) per share for the trailing twelve months was +0.73. Comparatively, FGP’s free cash flow per share was +0.55. On a percent-of-sales basis, CVRR’s free cash flow was 2.43% while FGP converted 2.62% of its revenues into cash flow. This means that, for a given level of sales, FGP 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. CVRR has a current ratio of 1.70 compared to 0.90 for FGP. This means that CVRR can more easily cover its most immediate liabilities over the next twelve months.
CVRR trades at a forward P/E of 10.68, a P/B of 0.76, and a P/S of 0.20, compared to a forward P/E of 21.33, and a P/S of 0.23 for FGP. 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
Investors often compare a stock’s current price to an analyst price target to get a sense of the potential upside within the next year. CVRR is currently priced at a -23.46% to its one-year price target of $9.08. Comparatively, FGP is -16.96% relative to its price target of $5.60. This suggests that CVRR 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 3.10 for CVRR and 3.30 for FGP, which implies that analysts are more bullish on the outlook for FGP.
Risk and Volatility
To gauge the market risk of a particular stock, investors use beta. Stocks with a beta above 1 are more volatile than the market as a whole. Conversely, a beta below 1 implies below average systematic risk. CVRR has a beta of 1.31 and FGP’s beta is 0.66. FGP’s shares are therefore the less volatile of the two stocks.
Insider Activity and Investor Sentiment
Analysts often look at short interest, or the percentage of a company’s float currently being shorted by investors, to aid in their outlook for a particular stock. CVRR has a short ratio of 4.00 compared to a short interest of 6.46 for FGP. This implies that the market is currently less bearish on the outlook for CVRR.
CVR Refining, LP (NYSE:CVRR) beats Ferrellgas Partners, L.P. (NYSE:FGP) on a total of 9 of the 12 factors compared between the two stocks. CVRR is more profitable, generates a higher return on investment, has higher cash flow per share and higher liquidity. In terms of valuation, CVRR is the cheaper of the two stocks on an earnings and sales basis, CVRR is more undervalued relative to its price target. Finally, CVRR has better sentiment signals based on short interest.