QEP Resources, Inc. (NYSE:QEP) shares are down more than -50.84% this year and recently decreased -6.80% or -$0.66 to settle at $9.05. Boardwalk Pipeline Partners, LP (NYSE:BWP), on the other hand, is down -17.63% year to date as of 11/13/2017. It currently trades at $14.30 and has returned -1.58% during the past week.
QEP Resources, Inc. (NYSE:QEP) and Boardwalk Pipeline Partners, LP (NYSE:BWP) are the two most active stocks in the Oil & Gas Pipelines 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.
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 QEP to grow earnings at a 18.00% annual rate over the next 5 years. Comparatively, BWP is expected to grow at a 7.40% annual rate. All else equal, QEP’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. EBITDA margin of 67.8% for Boardwalk Pipeline Partners, LP (BWP). QEP’s ROI is -16.20% while BWP has a ROI of 6.00%. The interpretation is that BWP’s business generates a higher return on investment than QEP’s.
The value of a stock is simply the present value of its future free cash flows. QEP’s free cash flow (“FCF”) per share for the trailing twelve months was -0.70. Comparatively, BWP’s free cash flow per share was -0.25. On a percent-of-sales basis, QEP’s free cash flow was -12.24% while BWP converted -4.79% of its revenues into cash flow. This means that, for a given level of sales, BWP 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. QEP has a current ratio of 1.60 compared to 0.60 for BWP. This means that QEP can more easily cover its most immediate liabilities over the next twelve months. QEP’s debt-to-equity ratio is 0.56 versus a D/E of 0.78 for BWP. BWP is therefore the more solvent of the two companies, and has lower financial risk.
QEP trades at a P/B of 0.60, and a P/S of 1.39, compared to a forward P/E of 10.47, a P/B of 0.78, and a P/S of 2.68 for BWP. QEP is the cheaper of the two stocks on an earnings, book value and sales basis. 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 isn’t a good investment if the stock is priced accurately. To get a sense of “value” we must compare the current price to some measure of intrinsic value such as a price target. QEP is currently priced at a -32.71% to its one-year price target of 13.45. Comparatively, BWP is -22.45% relative to its price target of 18.44. This suggests that QEP 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 2.10 for QEP and 2.50 for BWP, which implies that analysts are more bullish on the outlook for BWP.
Risk and Volatility
To gauge the market risk of a particular stock, investors use beta. Stocks with a beta above 1 are more volatile than the market as a whole. Conversely, a beta below 1 implies below average systematic risk. QEP has a beta of 1.70 and BWP’s beta is 0.75. BWP’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. QEP has a short ratio of 2.67 compared to a short interest of 7.41 for BWP. This implies that the market is currently less bearish on the outlook for QEP.
QEP Resources, Inc. (NYSE:QEP) beats Boardwalk Pipeline Partners, LP (NYSE:BWP) on a total of 9 of the 14 factors compared between the two stocks. QEP is growing fastly, higher liquidity and has lower financial risk. In terms of valuation, QEP is the cheaper of the two stocks on an earnings, book value and sales basis, QEP is more undervalued relative to its price target. Finally, QEP has better sentiment signals based on short interest.