Chevron Corporation (NYSE:CVX) shares are down more than -9.03% this year and recently decreased -1.31% or -$1.51 to settle at $113.89. Kimco Realty Corporation (NYSE:KIM), on the other hand, is down -21.49% year to date as of 03/19/2018. It currently trades at $14.25 and has returned -3.00% during the past week.
Chevron Corporation (NYSE:CVX) and Kimco Realty Corporation (NYSE:KIM) 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.
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 CVX to grow earnings at a 51.20% annual rate over the next 5 years. Comparatively, KIM is expected to grow at a 4.60% annual rate. All else equal, CVX’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., compared to an EBITDA margin of 58.22% for Kimco Realty Corporation (KIM). CVX’s ROI is 1.70% while KIM has a ROI of 3.10%. The interpretation is that KIM’s business generates a higher return on investment than CVX’s.
If there’s one thing investors care more about than earnings, it’s cash flow. CVX’s free cash flow (“FCF”) per share for the trailing twelve months was +0.29. Comparatively, KIM’s free cash flow per share was -0.27. On a percent-of-sales basis, CVX’s free cash flow was 0.39% while KIM converted -9.57% of its revenues into cash flow. This means that, for a given level of sales, CVX is able to generate more free cash flow for investors.
Liquidity and Financial Risk
CVX’s debt-to-equity ratio is 0.26 versus a D/E of 1.02 for KIM. KIM is therefore the more solvent of the two companies, and has lower financial risk.
CVX trades at a forward P/E of 18.04, a P/B of 1.45, and a P/S of 1.62, compared to a forward P/E of 23.25, a P/B of 1.12, and a P/S of 5.02 for KIM. 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
A cheap stock isn’t a good investment if the stock is priced accurately. To get a sense of “value” we must compare the current price to some measure of intrinsic value such as a price target. CVX is currently priced at a -15.8% to its one-year price target of 135.26. Comparatively, KIM is -22.13% relative to its price target of 18.30. This suggests that KIM 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 CVX and 2.80 for KIM, which implies that analysts are more bullish on the outlook for KIM.
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. CVX has a beta of 1.21 and KIM’s beta is 0.47. KIM’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. CVX has a short ratio of 3.02 compared to a short interest of 2.24 for KIM. This implies that the market is currently less bearish on the outlook for KIM.
Chevron Corporation (NYSE:CVX) beats Kimco Realty Corporation (NYSE:KIM) on a total of 8 of the 14 factors compared between the two stocks. CVX is growing fastly, has higher cash flow per share, has a higher cash conversion rate, higher liquidity and has lower financial risk. In terms of valuation, CVX is the cheaper of the two stocks on an earnings and sales basis, Finally, MOS has better sentiment signals based on short interest.