Finance

Critical Comparison: Devon Energy Corporation (DVN) vs. Mylan N.V. (MYL)

Devon Energy Corporation (NYSE:DVN) shares are up more than 2.32% this year and recently increased 2.32% or $0.96 to settle at $42.36. Mylan N.V. (NASDAQ:MYL), on the other hand, is down -5.27% year to date as of 05/17/2018. It currently trades at $40.08 and has returned 5.75% during the past week.

Devon Energy Corporation (NYSE:DVN) and Mylan N.V. (NASDAQ:MYL) 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 consistently grow earnings at a high compound rate usually have the greatest potential to create value for shareholders in the long-run. Analysts expect DVN to grow earnings at a 66.73% annual rate over the next 5 years. Comparatively, MYL is expected to grow at a 6.37% annual rate. All else equal, DVN’s higher growth rate would imply a greater potential for capital appreciation.

Profitability and Returns

Growth doesn’t mean much if it comes at the cost of weak profitability. To adjust for differences in capital structure we’ll use EBITDA margin and Return on Investment (ROI) as measures of profitability and return. , compared to an EBITDA margin of 35.24% for Mylan N.V. (MYL). DVN’s ROI is 7.80% while MYL has a ROI of 4.80%. The interpretation is that DVN’s business generates a higher return on investment than MYL’s.

Cash Flow



The amount of free cash flow available to investors is ultimately what determines the value of a stock. DVN’s free cash flow (“FCF”) per share for the trailing twelve months was -0.13. Comparatively, MYL’s free cash flow per share was +1.14. On a percent-of-sales basis, DVN’s free cash flow was -0.49% while MYL converted 4.94% of its revenues into cash flow. This means that, for a given level of sales, MYL is able to generate more free cash flow for investors.

Liquidity and Financial Risk

Analysts look at liquidity and leverage ratios to assess how easily a company can cover its liabilities. DVN has a current ratio of 1.00 compared to 1.10 for MYL. This means that MYL can more easily cover its most immediate liabilities over the next twelve months. DVN’s debt-to-equity ratio is 1.12 versus a D/E of 1.15 for MYL. MYL is therefore the more solvent of the two companies, and has lower financial risk.

Valuation

DVN trades at a forward P/E of 19.06, a P/B of 2.47, and a P/S of 1.53, compared to a forward P/E of 6.89, a P/B of 1.56, and a P/S of 1.66 for MYL. DVN 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

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. DVN is currently priced at a -7.49% to its one-year price target of 45.79. Comparatively, MYL is -19.61% relative to its price target of 49.86. This suggests that MYL is the better investment over the next year.

Risk and Volatility

Beta is an important measure that gives investors a sense of the market risk associated with a particular stock. A beta above 1 signals above average market risk, while a beta below 1 implies below average volatility. DVN has a beta of 2.21 and MYL’s beta is 1.33. MYL’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. DVN has a short ratio of 1.19 compared to a short interest of 4.04 for MYL. This implies that the market is currently less bearish on the outlook for DVN.

Summary

Mylan N.V. (NASDAQ:MYL) beats Devon Energy Corporation (NYSE:DVN) on a total of 8 of the 14 factors compared between the two stocks. MYL is growing fastly, has higher cash flow per share, has a higher cash conversion rate and higher liquidity. In terms of valuation, MYL is the cheaper of the two stocks on an earnings and book value, MYL is more undervalued relative to its price target. Finally, LPI has better sentiment signals based on short interest.

Previous ArticleNext Article

Related Post

Dissecting the Insider Trading Patterns of Rio Tin... Recent insider trends for Rio Tinto plc (NYSE:RIO) have caught the attention of investors. Insider activity is often a strong indicator of future perf...
Comparing Arrowhead Pharmaceuticals, Inc. (ARWR) a... Arrowhead Pharmaceuticals, Inc. (NASDAQ:ARWR) shares are up more than 171.74% this year and recently increased 4.93% or $0.47 to settle at $10.00. New...
How Insiders and Institutions are Trading The Home... Recent insider trends for The Home Depot, Inc. (NYSE:HD) have caught the attention of investors. Patters in insider activity can help analysts formula...
Dissecting the Numbers for Waters Corporation (WAT... Waters Corporation (NYSE:WAT) shares are down more than -0.01% this year and recently decreased -7.83% or -$16.42 to settle at $193.18. Oshkosh Corpor...
Should You Buy Liberty Global plc (LBTYK) or Blue ... Liberty Global plc (NASDAQ:LBTYK) shares are down more than -12.77% this year and recently decreased -6.02% or -$1.89 to settle at $29.52. Blue Apron ...