Global

Dissecting the Numbers for The Williams Companies, Inc. (WMB) and Anheuser-Busch InBev SA/NV (BUD)

The Williams Companies, Inc. (NYSE:WMB) shares are down more than -7.54% this year and recently decreased -0.70% or -$0.2 to settle at $28.19. Anheuser-Busch InBev SA/NV (NYSE:BUD), on the other hand, is down -19.91% year to date as of 09/13/2018. It currently trades at $89.35 and has returned -0.98% during the past week.

The Williams Companies, Inc. (NYSE:WMB) and Anheuser-Busch InBev SA/NV (NYSE:BUD) are the two most active stocks in the Oil & Gas Pipelines industry based on today’s trading volumes. Investors are clearly interested in the two names, but is one a better choice than the other? We will compare the two companies across growth, profitability, risk, valuation, and insider trends to answer this question.

Growth

Companies that can increase earnings at a high compound rate over time are attractive to investors. Analysts expect WMB to grow earnings at a 10.00% annual rate over the next 5 years. Comparatively, BUD is expected to grow at a 8.50% annual rate. All else equal, WMB’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 22.45% for Anheuser-Busch InBev SA/NV (BUD). WMB’s ROI is 3.10% while BUD has a ROI of 7.80%. The interpretation is that BUD’s business generates a higher return on investment than WMB’s.

Cash Flow



The value of a stock is simply the present value of its future free cash flows. On a percent-of-sales basis, WMB’s free cash flow was -4.02% while BUD converted 0% of its revenues into cash flow. This means that, for a given level of sales, BUD 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. WMB has a current ratio of 0.80 compared to 0.70 for BUD. This means that WMB can more easily cover its most immediate liabilities over the next twelve months. WMB’s debt-to-equity ratio is 2.28 versus a D/E of 1.71 for BUD. WMB is therefore the more solvent of the two companies, and has lower financial risk.

Valuation

WMB trades at a forward P/E of 28.74, a P/B of 2.50, and a P/S of 4.10, compared to a forward P/E of 17.49, a P/B of 2.58, and a P/S of 2.69 for BUD. WMB is the cheaper of the two stocks on book value basis but is expensive in terms of P/E and P/S 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. WMB is currently priced at a -17.5% to its one-year price target of 34.17. Comparatively, BUD is -23.27% relative to its price target of 116.44. This suggests that BUD 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. WMB has a beta of 1.54 and BUD’s beta is 0.91. BUD’s shares are therefore the less volatile of the two stocks.

Insider Activity and Investor Sentiment




Analysts often look at short interest, or the percentage of a company’s float currently being shorted by investors, to aid in their outlook for a particular stock. WMB has a short ratio of 3.82 compared to a short interest of 4.25 for BUD. This implies that the market is currently less bearish on the outlook for WMB.

Summary

Anheuser-Busch InBev SA/NV (NYSE:BUD) beats The Williams Companies, Inc. (NYSE:WMB) on a total of 8 of the 14 factors compared between the two stocks. BUD is growing fastly, has higher cash flow per share, has a higher cash conversion rate and has lower financial risk. In terms of valuation, BUD is the cheaper of the two stocks on an earnings and sales basis, BUD is more undervalued relative to its price target. Finally, COF has better sentiment signals based on short interest.

Previous ArticleNext Article

Related Post

Critical Comparison: First Industrial Realty Trust... First Industrial Realty Trust, Inc. (NYSE:FR) shares are up more than 3.15% this year and recently increased 0.09% or $0.03 to settle at $32.46. LogMe...
Comparing Tempur Sealy International, Inc. (TPX) a... Tempur Sealy International, Inc. (NYSE:TPX) shares are down more than -15.49% this year and recently increased 2.58% or $1.33 to settle at $52.98. Bio...
Mitel Networks Corporation (MITL) vs. Radius Healt... Mitel Networks Corporation (NASDAQ:MITL) shares are up more than 34.14% this year and recently increased 0.18% or $0.02 to settle at $11.04. Radius He...
Ur-Energy Inc. (URG) vs. EP Energy Corporation (EP... EP Energy Corporation (NYSE:EPE), on the other hand, is down -25.85% year to date as of 08/28/2018. It currently trades at $1.75 and has returned 10.7...
Dissecting the Numbers for Hanesbrands Inc. (HBI) ... Hanesbrands Inc. (NYSE:HBI) shares are down more than -12.58% this year and recently increased 1.78% or $0.32 to settle at $18.28. Roku, Inc. (NASDAQ:...