CenterPoint Energy, Inc. (NYSE:CNP) shares are up more than 17.33% this year and recently increased 0.61% or $0.17 to settle at $29.08. ONEOK, Inc. (NYSE:OKE), on the other hand, is down -8.83% year to date as of 12/05/2017. It currently trades at $51.76 and has returned 4.55% during the past week.
CenterPoint Energy, Inc. (NYSE:CNP) and ONEOK, Inc. (NYSE:OKE) are the two most active stocks in the Gas Utilities industry based on today’s trading volumes. We will compare the two companies based on the strength of various metrics, including growth, profitability, risk, return, and valuation to determine if one is a better investment than the other.
The ability to grow earnings at a compound rate over time is a crucial determinant of investment value. Analysts expect CNP to grow earnings at a 7.38% annual rate over the next 5 years. Comparatively, OKE is expected to grow at a 9.70% annual rate. All else equal, OKE’s higher growth rate would imply a greater potential for capital appreciation.
Profitability and Returns
Growth doesn’t mean much if it comes at the cost of weak profitability. To adjust for differences in capital structure we’ll use EBITDA margin and Return on Investment (ROI) as measures of profitability and return. , compared to an EBITDA margin of 15.88% for ONEOK, Inc. (OKE). CNP’s ROI is 5.50% while OKE has a ROI of 11.10%. The interpretation is that OKE’s business generates a higher return on investment than CNP’s.
Earnings don’t always accurately reflect the amount of cash that a company brings in. CNP’s free cash flow (“FCF”) per share for the trailing twelve months was -0.08. Comparatively, OKE’s free cash flow per share was -0.31. On a percent-of-sales basis, CNP’s free cash flow was -0.46% while OKE converted -1.33% of its revenues into cash flow. This means that, for a given level of sales, CNP is able to generate more free cash flow for investors.
Liquidity and Financial Risk
Balance sheet risk is one of the biggest factors to consider before investing. CNP has a current ratio of 0.90 compared to 0.60 for OKE. This means that CNP can more easily cover its most immediate liabilities over the next twelve months. CNP’s debt-to-equity ratio is 2.61 versus a D/E of 1.76 for OKE. CNP is therefore the more solvent of the two companies, and has lower financial risk.
CNP trades at a forward P/E of 20.16, a P/B of 3.45, and a P/S of 1.38, compared to a forward P/E of 23.89, a P/B of 3.72, and a P/S of 1.77 for OKE. CNP 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
Investors often compare a stock’s current price to an analyst price target to get a sense of the potential upside within the next year. CNP is currently priced at a -0.45% to its one-year price target of 29.21. Comparatively, OKE is -9.1% relative to its price target of 56.94. This suggests that OKE 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 2.70 for CNP and 2.60 for OKE, which implies that analysts are more bullish on the outlook for CNP.
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. CNP has a beta of 0.62 and OKE’s beta is 1.30. CNP’s shares are therefore the less volatile of the two stocks.
Insider Activity and Investor Sentiment
Short interest, or the percentage of a stock’s tradable shares currently being shorted, is another metric investors use to get a pulse on sentiment.CNP has a short ratio of 2.38 compared to a short interest of 3.97 for OKE. This implies that the market is currently less bearish on the outlook for CNP.
CenterPoint Energy, Inc. (NYSE:CNP) beats ONEOK, Inc. (NYSE:OKE) on a total of 9 of the 14 factors compared between the two stocks. CNP is more profitable, has higher cash flow per share, has a higher cash conversion rate and higher liquidity. In terms of valuation, CNP is the cheaper of the two stocks on an earnings, book value and sales basis, Finally, CNP has better sentiment signals based on short interest.