Global

Dissecting the Numbers for Enbridge Energy Partners, L.P. (EEP) and Infinera Corporation (INFN)

Enbridge Energy Partners, L.P. (NYSE:EEP) shares are down more than -16.15% this year and recently increased 2.66% or $0.3 to settle at $11.58. Infinera Corporation (NASDAQ:INFN), on the other hand, is up 35.39% year to date as of 08/09/2018. It currently trades at $8.57 and has returned 0.12% during the past week.

Enbridge Energy Partners, L.P. (NYSE:EEP) and Infinera Corporation (NASDAQ:INFN) are the two most active stocks in the Oil & Gas Pipelines 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

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 EEP to grow earnings at a 14.20% annual rate over the next 5 years. Comparatively, INFN is expected to grow at a 20.00% annual rate. All else equal, INFN’s higher growth rate would imply a greater potential for capital appreciation.

Profitability and Returns

Just, if not more, important than the growth rate is the quality of that growth. Growth can actual be harmful to investors if it comes at the cost of weak profitability and low returns. To adjust for differences in capital structure we’ll use EBITDA margin and Return on Investment (ROI) as measures of profitability and return. Enbridge Energy Partners, L.P. (EEP) has an EBITDA margin of 93.67%. This suggests that EEP underlying business is more profitable EEP’s ROI is 12.90% while INFN has a ROI of -22.40%. The interpretation is that EEP’s business generates a higher return on investment than INFN’s.

Cash Flow



The amount of free cash flow available to investors is ultimately what determines the value of a stock. On a percent-of-sales basis, EEP’s free cash flow was 0% while INFN converted -0% of its revenues into cash flow. This means that, for a given level of sales, EEP is able to generate more free cash flow for investors.

Liquidity and Financial Risk

Liquidity and leverage ratios are important because they reveal the financial health of a company. EEP has a current ratio of 0.20 compared to 1.70 for INFN. This means that INFN can more easily cover its most immediate liabilities over the next twelve months. EEP’s debt-to-equity ratio is 4.68 versus a D/E of 0.22 for INFN. EEP is therefore the more solvent of the two companies, and has lower financial risk.

Valuation

EEP trades at a forward P/E of 14.87, a P/B of 3.10, and a P/S of 1.54, compared to a forward P/E of 40.23, a P/B of 1.92, and a P/S of 1.68 for INFN. 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. EEP is currently priced at a 7.42% to its one-year price target of 10.78. Comparatively, INFN is -24.69% relative to its price target of 11.38. This suggests that INFN 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. EEP has a beta of 1.32 and INFN’s beta is 0.11. INFN’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. EEP has a short ratio of 2.57 compared to a short interest of 7.05 for INFN. This implies that the market is currently less bearish on the outlook for EEP.

Summary

Infinera Corporation (NASDAQ:INFN) beats Enbridge Energy Partners, L.P. (NYSE:EEP) on a total of 7 of the 14 factors compared between the two stocks. INFN is more profitable, higher liquidity and has lower financial risk. INFN is more undervalued relative to its price target. Finally, CLNE has better sentiment signals based on short interest.

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