Marathon Petroleum Corporation (NYSE:MPC) shares are up more than 27.45% this year and recently decreased -0.13% or -$0.11 to settle at $84.09. Carnival Corporation (NYSE:CCL), on the other hand, is down -5.53% year to date as of 09/13/2018. It currently trades at $62.70 and has returned 1.55% during the past week.
Marathon Petroleum Corporation (NYSE:MPC) and Carnival Corporation (NYSE:CCL) are the two most active stocks in the Oil & Gas Refining & Marketing industry based on today’s trading volumes. To determine if one is a better investment than the other, we will compare the two companies’ growth, profitability, risk, return, and valuation characteristics, as well as their analyst ratings and sentiment signals.Growth
The ability to grow earnings at a compound rate over time is a crucial determinant of investment value. Analysts expect MPC to grow earnings at a 57.94% annual rate over the next 5 years. Comparatively, CCL is expected to grow at a 12.73% annual rate. All else equal, MPC’s higher growth rate would imply a greater potential for capital appreciation.Profitability and Returns
Growth in and of itself is not necessarily valuable, and it can even be harmful to shareholders if companies overinvest in unprofitable projects in pursuit of that growth. We will use EBITDA margin and Return on Investment (ROI), which adjust for differences in capital structure, as measure of profitability and return. , compared to an EBITDA margin of 27.37% for Carnival Corporation (CCL). MPC’s ROI is 10.90% while CCL has a ROI of 8.20%. The interpretation is that MPC’s business generates a higher return on investment than CCL’s.Cash Flow
The value of a stock is simply the present value of its future free cash flows. MPC’s free cash flow (“FCF”) per share for the trailing twelve months was +6.31. Comparatively, CCL’s free cash flow per share was +0.10. On a percent-of-sales basis, MPC’s free cash flow was 3.81% while CCL converted 0.3% of its revenues into cash flow. This means that, for a given level of sales, MPC is able to generate more free cash flow for investors.Liquidity and Financial Risk
Liquidity and leverage ratios provide insight into the financial health of a company, and allow investors to determine the likelihood that the company will be able to continue operating as a going concern. MPC has a current ratio of 1.60 compared to 0.20 for CCL. This means that MPC can more easily cover its most immediate liabilities over the next twelve months. MPC’s debt-to-equity ratio is 1.15 versus a D/E of 0.41 for CCL. MPC is therefore the more solvent of the two companies, and has lower financial risk.Valuation
MPC trades at a forward P/E of 11.69, a P/B of 2.58, and a P/S of 0.46, compared to a forward P/E of 13.17, a P/B of 1.87, and a P/S of 2.37 for CCL. 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
Investors often compare a stock’s current price to an analyst price target to get a sense of the potential upside within the next year. MPC is currently priced at a -14.86% to its one-year price target of 98.77. Comparatively, CCL is -13.73% relative to its price target of 72.68. This suggests that MPC is the better investment over the next year.
Risk and Volatility
No discussion on value is complete without taking into account risk. Analysts use a stock’s beta, which measures the volatility of a stock compared to the overall market, to measure systematic risk. A stock with a beta above 1 is more volatile than the market. Conversely, a beta below 1 implies a below average level of risk. MPC has a beta of 1.48 and CCL’s beta is 0.90. CCL’s shares are therefore the less volatile of the two stocks.Insider Activity and Investor Sentiment
Comparing the number of shares sold short to the float is a method analysts often use to get a reading on investor sentiment. MPC has a short ratio of 6.41 compared to a short interest of 3.12 for CCL. This implies that the market is currently less bearish on the outlook for CCL.Summary
Marathon Petroleum Corporation (NYSE:MPC) beats Carnival Corporation (NYSE:CCL) on a total of 9 of the 14 factors compared between the two stocks. MPC is growing fastly, generates a higher return on investment, has higher cash flow per share, has a higher cash conversion rate and higher liquidity. In terms of valuation, MPC is the cheaper of the two stocks on an earnings and sales basis, MPC is more undervalued relative to its price target. Finally, WB has better sentiment signals based on short interest.