Finance

Choosing Between Enterprise Products Partners L.P. (EPD) and Valley National Bancorp (VLY)

Enterprise Products Partners L.P. (NYSE:EPD) shares are up more than 7.82% this year and recently decreased -0.28% or -$0.08 to settle at $28.13. Valley National Bancorp (NYSE:VLY), on the other hand, is up 13.37% year to date as of 05/17/2018. It currently trades at $12.72 and has returned -1.17% during the past week.

Enterprise Products Partners L.P. (NYSE:EPD) and Valley National Bancorp (NYSE:VLY) are the two most active stocks in the Independent Oil & Gas industry 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

Companies that can increase earnings at a high compound rate over time are attractive to investors. Analysts expect EPD to grow earnings at a 8.64% annual rate over the next 5 years. Comparatively, VLY is expected to grow at a 5.00% annual rate. All else equal, EPD’s higher growth rate would imply a greater potential for capital appreciation.

Profitability and Returns

Growth isn’t very attractive to investors if companies are sacrificing profitability and shareholder returns to achieve that growth. We will use EBITDA margin and Return on Investment (ROI), which control for differences in capital structure between the two companies, to measure profitability and return., compared to an EBITDA margin of 59.43% for Valley National Bancorp (VLY). EPD’s ROI is 8.30% while VLY has a ROI of 22.10%. The interpretation is that VLY’s business generates a higher return on investment than EPD’s.

Cash Flow



The value of a stock is simply the present value of its future free cash flows. EPD’s free cash flow (“FCF”) per share for the trailing twelve months was -0.28. Comparatively, VLY’s free cash flow per share was +0.12. On a percent-of-sales basis, EPD’s free cash flow was -2.07% while VLY converted 0% of its revenues into cash flow. This means that, for a given level of sales, VLY is able to generate more free cash flow for investors.

Liquidity and Financial Risk

EPD’s debt-to-equity ratio is 1.12 versus a D/E of 0.79 for VLY. EPD is therefore the more solvent of the two companies, and has lower financial risk.

Valuation

EPD trades at a forward P/E of 16.88, a P/B of 2.68, and a P/S of 1.92, compared to a forward P/E of 12.37, a P/B of 1.39, and a P/S of 4.59 for VLY. EPD is the cheaper of the two stocks on sales basis but is expensive in terms of P/E and P/B 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

A cheap stock is not necessarily a value stock. Most of the time, a stock is cheap for good reason. A stock only has value if the current price is substantially below the price at which it should trade in the future. EPD is currently priced at a -9.75% to its one-year price target of 31.17. Comparatively, VLY is -8.42% relative to its price target of 13.89. This suggests that EPD is the better investment over the next year.

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. EPD has a beta of 0.82 and VLY’s beta is 0.94. EPD’s shares are therefore the less volatile of the two stocks.

Insider Activity and Investor Sentiment

Short interest, or the percentage of a stock’s tradable shares currently being shorted, is another metric investors use to get a pulse on sentiment. EPD has a short ratio of 1.68 compared to a short interest of 5.41 for VLY. This implies that the market is currently less bearish on the outlook for EPD.

Summary




Valley National Bancorp (NYSE:VLY) beats Enterprise Products Partners L.P. (NYSE:EPD) on a total of 7 of the 14 factors compared between the two stocks. VLY is growing fastly, generates a higher return on investment, has higher cash flow per share, has a higher cash conversion rate and has lower financial risk. In terms of valuation, VLY is the cheaper of the two stocks on an earnings and book value, Finally, SAN has better sentiment signals based on short interest.

Previous ArticleNext Article

Related Post

Critical Comparison: J.Jill, Inc. (JILL) vs. Dulut... J.Jill, Inc. (NYSE:JILL) and Duluth Holdings Inc. (NASDAQ:DLTH) are the two most active stocks in the Apparel Stores industry based on today’s trading...
Should You Buy MuleSoft, Inc. (MULE) or Twilio Inc... MuleSoft, Inc. (NYSE:MULE) shares are up more than 91.01% this year and recently increased 0.43% or $0.19 to settle at $44.43. Twilio Inc. (NYSE:TWLO)...
Reviewing the Insider Trends for Gastar Exploratio... Recent insider trends for Gastar Exploration Inc. (NYSE:GST) have caught the attention of investors. Patters in insider activity can help analysts for...
Are Investors Buying or Selling Oracle Corporation... Recent insider trends for Oracle Corporation (NYSE:ORCL) have caught the attention of investors. Insider data is useful because it can reveal what a c...
Reviewing the Insider Trends for Trevena, Inc. (TR... Recent insider trends for Trevena, Inc. (NASDAQ:TRVN) have caught the attention of investors. Analysts study insider data to get a sense of sense of w...