PBF Energy Inc. (NYSE:PBF) shares are up more than 10.37% this year and recently decreased -1.66% or -$0.52 to settle at $30.77. Delek US Holdings, Inc. (NYSE:DK), on the other hand, is up 13.13% year to date as of 11/13/2017. It currently trades at $27.23 and has returned -3.81% during the past week.
PBF Energy Inc. (NYSE:PBF) and Delek US Holdings, Inc. (NYSE:DK) are the two most active stocks in the Oil & Gas Refining & Marketing industry based on today’s trading volumes. The market is clearly enthusiastic about both these stocks, but which is the better investment? To answer this, we will compare the two companies based on the strength of their growth, profitability, risk, returns, valuation, analyst recommendations, and insider trends.
The ability to consistently grow earnings at a high compound rate is a defining characteristic of the best companies for long-term investment. Analysts expect PBF to grow earnings at a 10.00% annual rate over the next 5 years.
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. PBF Energy Inc. (PBF) has an EBITDA margin of 4.31%. This suggests that PBF underlying business is more profitable PBF’s ROI is 8.70% while DK has a ROI of -6.70%. The interpretation is that PBF’s business generates a higher return on investment than DK’s.
If there’s one thing investors care more about than earnings, it’s cash flow. PBF’s free cash flow (“FCF”) per share for the trailing twelve months was +2.33. Comparatively, DK’s free cash flow per share was +0.42. On a percent-of-sales basis, PBF’s free cash flow was 1.61% while DK converted 0.81% of its revenues into cash flow. This means that, for a given level of sales, PBF 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. PBF has a current ratio of 1.50 compared to 1.50 for DK. This means that PBF can more easily cover its most immediate liabilities over the next twelve months. PBF’s debt-to-equity ratio is 1.02 versus a D/E of 0.85 for DK. PBF is therefore the more solvent of the two companies, and has lower financial risk.
PBF trades at a forward P/E of 12.01, a P/B of 1.60, and a P/S of 0.17, compared to a forward P/E of 22.07, a P/B of 1.74, and a P/S of 0.38 for DK. PBF 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 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. PBF is currently priced at a 0.56% to its one-year price target of 30.60. Comparatively, DK is -8.01% relative to its price target of 29.60. This suggests that DK 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 2.60 for PBF and 2.40 for DK, which implies that analysts are more bullish on the outlook for PBF.
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. PBF has a beta of 1.38 and DK’s beta is 1.90. PBF’s shares are therefore the less volatile of the two stocks.
Insider Activity and Investor Sentiment
Short interest is another tool that analysts use to gauge investor sentiment. It represents the percentage of a stock’s tradable shares that are being shorted. PBF has a short ratio of 6.47 compared to a short interest of 5.28 for DK. This implies that the market is currently less bearish on the outlook for DK.
PBF Energy Inc. (NYSE:PBF) beats Delek US Holdings, Inc. (NYSE:DK) on a total of 10 of the 14 factors compared between the two stocks. PBF is growing fastly, is more profitable, 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, PBF is the cheaper of the two stocks on an earnings, book value and sales basis, Finally, GPK has better sentiment signals based on short interest.