Earnings

Hecla Mining Company (HL) vs. The Kraft Heinz Company (KHC): Breaking Down the Silver Industry’s Two Hottest Stocks

Hecla Mining Company (NYSE:HL) shares are up more than 1.26% this year and recently increased 3.88% or $0.15 to settle at $4.02. The Kraft Heinz Company (NASDAQ:KHC), on the other hand, is down -7.51% year to date as of 02/14/2018. It currently trades at $71.92 and has returned -2.22% during the past week.

Hecla Mining Company (NYSE:HL) and The Kraft Heinz Company (NASDAQ:KHC) are the two most active stocks in the market 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.

Growth

The ability to consistently grow earnings at a high compound rate is a defining characteristic of the best companies for long-term investment. Comparatively, KHC is expected to grow at a 9.87% annual rate. All else equal, KHC’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 29.88% for The Kraft Heinz Company (KHC). HL’s ROI is 4.50% while KHC has a ROI of 5.30%. The interpretation is that KHC’s business generates a higher return on investment than HL’s.

Cash Flow 




Cash is king when it comes to investing. HL’s free cash flow (“FCF”) per share for the trailing twelve months was +0.01. Comparatively, KHC’s free cash flow per share was -1.52. On a percent-of-sales basis, HL’s free cash flow was 0% while KHC converted -6.99% of its revenues into cash flow. This means that, for a given level of sales, HL is able to generate more free cash flow for investors.

Liquidity and Financial Risk

Liquidity and leverage ratios measure a company’s ability to meet short-term obligations and longer-term debts. HL has a current ratio of 2.70 compared to 0.80 for KHC. This means that HL can more easily cover its most immediate liabilities over the next twelve months. HL’s debt-to-equity ratio is 0.34 versus a D/E of 0.54 for KHC. KHC is therefore the more solvent of the two companies, and has lower financial risk.

Valuation

HL trades at a forward P/E of 26.45, a P/B of 1.06, and a P/S of 2.84, compared to a forward P/E of 18.16, a P/B of 1.49, and a P/S of 3.35 for KHC. 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”. HL is currently priced at a -23.57% to its one-year price target of 5.26. Comparatively, KHC is -19.96% relative to its price target of 89.86. This suggests that HL 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 2.50 for HL and 2.00 for KHC, which implies that analysts are more bullish on the outlook for HL.

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. HL has a short ratio of 2.63 compared to a short interest of 4.47 for KHC. This implies that the market is currently less bearish on the outlook for HL.

Summary

Hecla Mining Company (NYSE:HL) beats The Kraft Heinz Company (NASDAQ:KHC) on a total of 8 of the 14 factors compared between the two stocks. HL has higher cash flow per share, has a higher cash conversion rate, higher liquidity and has lower financial risk. In terms of valuation, HL is the cheaper of the two stocks on book value and sales basis, HL is more undervalued relative to its price target. Finally, HL has better sentiment signals based on short interest.

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