SunCoke Energy, Inc. (NYSE:SXC) and SunCoke Energy Partners, L.P. (NYSE:SXCP) are the two most active stocks in the Nonmetallic Mineral Mining industry based on today’s trading volumes. Investors are clearly interested in the two names, but is one a better choice than the other? We will compare the two companies across growth, profitability, risk, valuation, and insider trends to answer this question.
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 SXC to grow earnings at a 8.00% annual rate over the next 5 years. Comparatively, SXCP is expected to grow at a 15.20% annual rate. All else equal, SXCP’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. SunCoke Energy, Inc. (SXC) has an EBITDA margin of 16.92%, compared to an EBITDA margin of 25.73% for SunCoke Energy Partners, L.P. (SXCP). This suggests that SXCP underlying business is more profitable. SXC’s ROI is 9.70% while SXCP has a ROI of 11.10%. The interpretation is that SXCP’s business generates a higher return on investment than SXC’s.
The value of a stock is simply the present value of its future free cash flows. SXC’s free cash flow (“FCF”) per share for the trailing twelve months was +0.24. Comparatively, SXCP’s free cash flow per share was -0.53. On a percent-of-sales basis, SXC’s free cash flow was 1.26% while SXCP converted -0% of its revenues into cash flow. This means that, for a given level of sales, SXC is able to generate more free cash flow for investors.
Liquidity and Financial Risk
Balance sheet risk is one of the biggest factors to consider before investing. SXC has a current ratio of 1.80 compared to 1.60 for SXCP. This means that SXC can more easily cover its most immediate liabilities over the next twelve months. SXC’s debt-to-equity ratio is 3.07 versus a D/E of 1.63 for SXCP. SXC is therefore the more solvent of the two companies, and has lower financial risk.
SXC trades at a forward P/E of 155.27, a P/B of 1.93, and a P/S of 0.44, compared to a forward P/E of 9.91, a P/B of 1.48, and a P/S of 0.99 for SXCP. SXC is the cheaper of the two stocks on sales basis but is expensive in terms of P/E and P/B 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
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. SXC is currently priced at a -28.83% to its one-year price target of $12.00. Comparatively, SXCP is -21.9% relative to its price target of $21.00. This suggests that SXC 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 2.00 for SXC and 2.30 for SXCP, which implies that analysts are more bullish on the outlook for SXCP.
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. SXC has a beta of 1.30 and SXCP’s beta is 1.36. SXC’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. SXC has a short ratio of 2.20 compared to a short interest of 0.84 for SXCP. This implies that the market is currently less bearish on the outlook for SXCP.
SunCoke Energy Partners, L.P. (NYSE:SXCP) beats SunCoke Energy, Inc. (NYSE:SXC) on a total of 7 of the 14 factors compared between the two stocks. SXCP has higher cash flow per share, is more profitable, generates a higher return on investment and has lower financial risk. In terms of valuation, SXCP is the cheaper of the two stocks on an earnings and book value, Finally, SXCP has better sentiment signals based on short interest.