Leucadia National Corporation (NYSE:LUK) shares are down more than -8.27% this year and recently decreased -0.25% or -$0.06 to settle at $24.30. Noble Energy, Inc. (NYSE:NBL), on the other hand, is up 10.16% year to date as of 04/13/2018. It currently trades at $32.10 and has returned 9.71% during the past week.
Leucadia National Corporation (NYSE:LUK) and Noble Energy, Inc. (NYSE:NBL) are the two most active stocks in the Packaged Foods industry based on today’s trading volumes. We will compare the two companies based on the strength of various metrics, including growth, profitability, risk, return, and valuation to determine if one is a better investment than the other.Growth
The ability to grow earnings at a compound rate over time is a crucial determinant of investment value. Analysts expect LUK to grow earnings at a 18.00% annual rate over the next 5 years. Comparatively, NBL is expected to grow at a 71.67% annual rate. All else equal, NBL’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. Leucadia National Corporation (LUK) has an EBITDA margin of 9.18%. This suggests that LUK underlying business is more profitable LUK’s ROI is 2.80% while NBL has a ROI of -8.50%. The interpretation is that LUK’s business generates a higher return on investment than NBL’s.Cash Flow
Cash is king when it comes to investing. LUK’s free cash flow (“FCF”) per share for the trailing twelve months was -2.40. Comparatively, NBL’s free cash flow per share was -0.43. On a percent-of-sales basis, LUK’s free cash flow was -7.48% while NBL converted -4.97% of its revenues into cash flow. This means that, for a given level of sales, NBL 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. LUK has a current ratio of 0.70 compared to 1.30 for NBL. This means that NBL can more easily cover its most immediate liabilities over the next twelve months. LUK’s debt-to-equity ratio is 2.08 versus a D/E of 0.69 for NBL. LUK is therefore the more solvent of the two companies, and has lower financial risk.Valuation
LUK trades at a forward P/E of 15.00, a P/B of 0.86, and a P/S of 0.70, compared to a forward P/E of 27.70, a P/B of 1.56, and a P/S of 3.64 for NBL. LUK is the cheaper of the two stocks on an earnings, book value and sales basis. 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
Just because a stock is cheaper doesn’t mean there’s more value to be had. In order to assess value we need to compare the current price to where it’s likely to trade in the future. LUK is currently priced at a -28.53% to its one-year price target of 34.00. Comparatively, NBL is -20.41% relative to its price target of 40.33. This suggests that LUK is the better investment over the next year.
Risk and Volatility
Beta is a metric that investors frequently use to analyze a stock’s systematic risk. A beta above 1 implies above average market volatility. Conversely, a stock with a beta below 1 is seen as less risky than the overall market. LUK has a beta of 1.29 and NBL’s beta is 1.04. NBL’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. LUK has a short ratio of 1.59 compared to a short interest of 3.26 for NBL. This implies that the market is currently less bearish on the outlook for LUK.Summary
Leucadia National Corporation (NYSE:LUK) beats Noble Energy, Inc. (NYSE:NBL) on a total of 8 of the 14 factors compared between the two stocks. LUK is more profitable and generates a higher return on investment. In terms of valuation, LUK is the cheaper of the two stocks on an earnings, book value and sales basis, LUK is more undervalued relative to its price target. Finally, LUK has better sentiment signals based on short interest.