Earnings

A Side-by-side Analysis of Parsley Energy, Inc. (PE) and Energy Transfer Partners, L.P. (ETP)

Parsley Energy, Inc. (NYSE:PE) shares are down more than -20.28% this year and recently increased 3.99% or $0.9 to settle at $23.47. Energy Transfer Partners, L.P. (NYSE:ETP), on the other hand, is up 6.08% year to date as of 02/14/2018. It currently trades at $19.01 and has returned -0.42% during the past week.

Parsley Energy, Inc. (NYSE:PE) and Energy Transfer Partners, L.P. (NYSE:ETP) are the two most active stocks in the market 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

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, ETP is expected to grow at a 60.20% annual rate. All else equal, ETP’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. , compared to an EBITDA margin of 19.31% for Energy Transfer Partners, L.P. (ETP). PE’s ROI is 0.40% while ETP has a ROI of 1.50%. The interpretation is that ETP’s business generates a higher return on investment than PE’s.

Cash Flow 




If there’s one thing investors care more about than earnings, it’s cash flow. PE’s free cash flow (“FCF”) per share for the trailing twelve months was -1.06. Comparatively, ETP’s free cash flow per share was -2.11. On a percent-of-sales basis, PE’s free cash flow was -0.07% while ETP converted -26.64% of its revenues into cash flow. This means that, for a given level of sales, PE is able to generate more free cash flow for investors.

Liquidity and Financial Risk

Liquidity and leverage ratios provide insight into the financial health of a company, and allow investors to determine the likelihood that the company will be able to continue operating as a going concern. PE has a current ratio of 0.90 compared to 0.80 for ETP. This means that PE can more easily cover its most immediate liabilities over the next twelve months. PE’s debt-to-equity ratio is 0.32 versus a D/E of 1.30 for ETP. ETP is therefore the more solvent of the two companies, and has lower financial risk.

Valuation

PE trades at a forward P/E of 18.45, a P/B of 1.26, and a P/S of 9.23, compared to a forward P/E of 19.01, a P/B of 0.81, and a P/S of 0.94 for ETP. PE is the cheaper of the two stocks on an earnings basis but is expensive in terms of P/B 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

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. PE is currently priced at a -38.72% to its one-year price target of 38.30. Comparatively, ETP is -21.25% relative to its price target of 24.14. This suggests that PE 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 PE and 1.80 for ETP, which implies that analysts are more bullish on the outlook for PE.

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. PE has a beta of -0.19 and ETP’s beta is 0.88. PE’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. PE has a short ratio of 2.31 compared to a short interest of 1.36 for ETP. This implies that the market is currently less bearish on the outlook for ETP.

Summary

Parsley Energy, Inc. (NYSE:PE) beats Energy Transfer Partners, L.P. (NYSE:ETP) on a total of 8 of the 14 factors compared between the two stocks. PE is more profitable, has higher cash flow per share, has a higher cash conversion rate, higher liquidity and has lower financial risk. PE is more undervalued relative to its price target. Finally, GPOR has better sentiment signals based on short interest.

Previous ArticleNext Article

Related Post

Comparing The Goodyear Tire & Rubber Company ... The Goodyear Tire & Rubber Company (NASDAQ:GT) shares are up more than 2.54% this year and recently increased 0.88% or $0.29 to settle at $33.13. ...
Taking a Look at the Operational Data for AT&... AT&T Inc. (NYSE:T) seems to be forming a pattern of major movements, providing only some crumbs of outlook for market participants trying to figur...
Should You Buy Annaly Capital Management, Inc. (NL... Annaly Capital Management, Inc. (NYSE:NLY) shares are up more than 21.16% this year and recently increased 0.25% or $0.03 to settle at $12.08. MFA Fin...
Acuity Brands, Inc. (AYI): Does This Move Make Any... It is interesting to note that Acuity Brands, Inc. (NYSE:AYI) is active and made a solid movement in the last trading day. Now trading with a market v...
Which of 2 stocks would appeal to long-term invest... The shares of Assured Guaranty Ltd. have increased by more than 6.08% this year alone. The shares recently went down by -2.10% or -$0.77 and now trade...