Earnings

Reliable Long-term Trend to Profit From: Andeavor (ANDV), Phillips 66 (PSX)

The shares of Andeavor have decreased by more than -0.44% this year alone. The shares recently went up by 2.97% or $3.28 and now trades at $113.84. The shares of Phillips 66 (NYSE:PSX), has jumped by 5.61% year to date as of 04/16/2018. The shares currently trade at $106.82 and have been able to report a change of 9.29% over the past one week.

The stock of Andeavor and Phillips 66 were two of the most active stocks on Monday. Investors seem to be very interested in what happens to the stocks of these two companies but do investors favor one over the other? We will analyze the growth, profitability, risk, valuation, and insider trends of both companies and see which one investors prefer.

Next 5Y EPS Growth: 28.71% versus 2.76%

When a company is able to grow consistently in terms of earnings at a high compound rate have the highest likelihood of creating value for its shareholders over time. Analysts have predicted that ANDV will grow it’s earning at a 28.71% annual rate in the next 5 years. This is in contrast to PSX which will have a positive growth at a 2.76% annual rate. This means that the higher growth rate of ANDV implies a greater potential for capital appreciation over the years.

Profitability and Returns

Growth alone cannot be used to see if the company will be valuable. Shareholders will be the losers if a company invest in ventures that aren’t profitable enough to support upbeat growth. In order for us to accurately measure profitability and return, we will be using the EBITDA margin and Return on Investment (ROI), which balances the difference in capital structure. The ROI of ANDV is 6.70% while that of PSX is 2.60%. These figures suggest that ANDV ventures generate a higher ROI than that of PSX.

Cash Flow



The value of a stock is ultimately determined by the amount of cash flow that the investors have available. Over the last 12 months, ANDV’s free cash flow per share is a negative -0.3, while that of PSX is positive 0.93.

Liquidity and Financial Risk

The ability of a company to meet up with its short-term obligations and be able to clear its longer-term debts is measured using Liquidity and leverage ratios. The current ratio for ANDV is 1.40 and that of PSX is 1.40. This implies that it is easier for ANDV to cover its immediate obligations over the next 12 months than PSX. The debt ratio of ANDV is 0.78 compared to 0.40 for PSX. ANDV can be able to settle its long-term debts and thus is a lower financial risk than PSX.

Valuation

ANDV currently trades at a forward P/E of 10.40, a P/B of 1.80, and a P/S of 0.50 while PSX trades at a forward P/E of 13.16, a P/B of 2.16, and a P/S of 0.53. This means that looking at the earnings, book values and sales basis, ANDV is the cheaper one. It is very obvious that earnings are the most important factors to investors, thus analysts are most likely to place their bet on the P/E.

Analyst Price Targets and Opinions




The mistake some people make is that they think a cheap stock has more value to it. In order to know the value of a stock, there is need to compare its current price to its likely trading price in the future. The price of ANDV is currently at a -14.84% to its one-year price target of 133.67. Looking at its rival pricing, PSX is at a -1.47% relative to its price target of 108.41.

When looking at the investment recommendation on say a scale of 1 to 5 (1 being a strong buy, 3 a hold, and 5 a sell), ANDV is given a 1.90 while 2.80 placed for PSX. This means that analysts are more bullish on the outlook for PSX stocks.

Insider Activity and Investor Sentiment

Short interest or otherwise called the percentage of a stock’s tradable shares currently being shorted is another data that investors use to get a handle on sentiment. The short ratio for ANDV is 2.92 while that of PSX is just 2.44. This means that analysts are more bullish on the forecast for PSX stock.

Conclusion

The stock of Phillips 66 defeats that of Andeavor when the two are compared, with PSX taking 6 out of the total factors that were been considered. PSX happens to be more profitable, generates a higher ROI, has higher cash flow per share, higher liquidity and has a lower financial risk. When looking at the stock valuation, PSX is the cheaper one on an earnings, book value and sales basis. Finally, the sentiment signal for PSX is better on when it is viewed on short interest.

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