MBIA Inc. (NYSE:MBI) shares are down more than -14.58% this year and recently increased 2.70% or $0.24 to settle at $9.14. Warrior Met Coal, Inc. (NYSE:HCC), on the other hand, is up 54.83% year to date as of 11/13/2017. It currently trades at $27.87 and has returned 4.62% during the past week.
MBIA Inc. (NYSE:MBI) and Warrior Met Coal, Inc. (NYSE:HCC) are the two most active stocks in the Property & Casualty Insurance 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 grow earnings at a compound rate over time is a crucial determinant of investment value. Analysts expect MBI to grow earnings at a 10.00% annual rate over the next 5 years. Comparatively, HCC is expected to grow at a 7.00% annual rate. All else equal, MBI’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. EBITDA margin of 24.95% for Warrior Met Coal, Inc. (HCC). MBI’s ROI is -1.30% while HCC has a ROI of -13.30%. The interpretation is that MBI’s business generates a higher return on investment than HCC’s.
Cash is king when it comes to investing. On a percent-of-sales basis, MBI’s free cash flow was 0% while HCC converted 0.02% of its revenues into cash flow. This means that, for a given level of sales, HCC is able to generate more free cash flow for investors.
Liquidity and Financial Risk
MBI’s debt-to-equity ratio is 2.95 versus a D/E of 0.01 for HCC. MBI is therefore the more solvent of the two companies, and has lower financial risk.
MBI trades at a forward P/E of 22.57, a P/B of 0.59, and a P/S of 5.41, compared to a forward P/E of 9.28, a P/B of 1.84, and a P/S of 1.73 for HCC. MBI 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
When investing it’s crucial to distinguish between price and value. As Warren Buffet said, “price is what you pay, value is what you get”. MBI is currently priced at a -27.97% to its one-year price target of 12.69. Comparatively, HCC is -57.12% relative to its price target of 65.00. This suggests that HCC 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 2.30 for MBI and 3.00 for HCC, which implies that analysts are more bullish on the outlook for HCC.
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. MBI has a short ratio of 10.46 compared to a short interest of 4.67 for HCC. This implies that the market is currently less bearish on the outlook for HCC.
Warrior Met Coal, Inc. (NYSE:HCC) beats MBIA Inc. (NYSE:MBI) on a total of 10 of the 14 factors compared between the two stocks. HCC is growing fastly, has higher cash flow per share, has a higher cash conversion rate, higher liquidity and has lower financial risk. In terms of valuation, HCC is the cheaper of the two stocks on an earnings and sales basis, HCC is more undervalued relative to its price target. Finally, HCC has better sentiment signals based on short interest.