Calumet Specialty Products Partners, L.P. (NASDAQ:CLMT) and Par Pacific Holdings, Inc. (NYSE:PARR) are the two most active stocks in the Oil & Gas Refining & Marketing 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.
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. Calumet Specialty Products Partners, L.P. (CLMT) has an EBITDA margin of 6.62%, compared to an EBITDA margin of 4.37% for Par Pacific Holdings, Inc. (PARR). This suggests that CLMT underlying business is more profitable. CLMT’s ROI is -7.50% while PARR has a ROI of -1.20%. The interpretation is that PARR’s business generates a higher return on investment than CLMT’s.
The value of a stock is simply the present value of its future free cash flows. CLMT’s free cash flow (“FCF”) per share for the trailing twelve months was -0.10. Comparatively, PARR’s free cash flow per share was +0.72. On a percent-of-sales basis, CLMT’s free cash flow was -0.21% while PARR converted 1.77% of its revenues into cash flow. This means that, for a given level of sales, PARR is able to generate more free cash flow for investors.
Liquidity and Financial Risk
Liquidity and leverage ratios measure a company’s ability to meet short-term obligations and longer-term debts. CLMT has a current ratio of 1.40 compared to 1.10 for PARR. This means that CLMT can more easily cover its most immediate liabilities over the next twelve months. CLMT’s debt-to-equity ratio is 9.57 versus a D/E of 0.90 for PARR. CLMT is therefore the more solvent of the two companies, and has lower financial risk.
CLMT trades at a forward P/B of 2.44, and a P/S of 0.12, compared to a forward P/E of 12.93, a P/B of 1.93, and a P/S of 0.37 for PARR. CLMT 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. CLMT is currently priced at a 9.17% to its one-year price target of $6.00. Comparatively, PARR is -23.51% relative to its price target of $22.20. This suggests that PARR is the better investment over the next year.
The average investment recommendation on a scale of 1 to 5 (1 being a strong buy, 3 a hold, and 5 a sell) is 2.80 for CLMT and 2.00 for PARR, which implies that analysts are more bullish on the outlook for CLMT.
Risk and Volatility
Beta is a metric that investors frequently use to analyze a stock’s systematic risk. A beta above 1 implies above average market volatility. Conversely, a stock with a beta below 1 is seen as less risky than the overall market. CLMT has a beta of 1.34 and PARR’s beta is 0.31. PARR’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. CLMT has a short ratio of 1.45 compared to a short interest of 17.39 for PARR. This implies that the market is currently less bearish on the outlook for CLMT.
Par Pacific Holdings, Inc. (NYSE:PARR) beats Calumet Specialty Products Partners, L.P. (NASDAQ:CLMT) on a total of 8 of the 12 factors compared between the two stocks. PARR is more profitable, has higher cash flow per share, has a higher cash conversion rate and has lower financial risk. PARR is more undervalued relative to its price target. Finally, CVRR has better sentiment signals based on short interest.