Enterprise Products Partners L.P. (NYSE:EPD) shares are down more than -8.28% this year and recently decreased -1.77% or -$0.44 to settle at $24.36. ConocoPhillips (NYSE:COP), on the other hand, is up 2.17% year to date as of 12/05/2017. It currently trades at $50.78 and has returned 2.19% during the past week.
Enterprise Products Partners L.P. (NYSE:EPD) and ConocoPhillips (NYSE:COP) are the two most active stocks in the Independent Oil & Gas 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.
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 EPD to grow earnings at a 4.73% annual rate over the next 5 years.
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 14.51% for ConocoPhillips (COP). EPD’s ROI is 7.80% while COP has a ROI of -3.80%. The interpretation is that EPD’s business generates a higher return on investment than COP’s.
Cash is king when it comes to investing. EPD’s free cash flow (“FCF”) per share for the trailing twelve months was -0.66. Comparatively, COP’s free cash flow per share was -0.29. On a percent-of-sales basis, EPD’s free cash flow was -6.2% while COP converted -1.42% of its revenues into cash flow. This means that, for a given level of sales, COP is able to generate more free cash flow for investors.
Liquidity and Financial Risk
Analysts look at liquidity and leverage ratios to assess how easily a company can cover its liabilities. EPD has a current ratio of 0.70 compared to 2.40 for COP. This means that COP can more easily cover its most immediate liabilities over the next twelve months. EPD’s debt-to-equity ratio is 1.11 versus a D/E of 0.69 for COP. EPD is therefore the more solvent of the two companies, and has lower financial risk.
EPD trades at a forward P/E of 16.86, a P/B of 2.39, and a P/S of 1.89, compared to a forward P/E of 32.34, a P/B of 2.04, and a P/S of 2.22 for COP. 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”. EPD is currently priced at a -23.28% to its one-year price target of 31.75. Comparatively, COP is -10.99% relative to its price target of 57.05. This suggests that EPD 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 1.60 for EPD and 2.00 for COP, which implies that analysts are more bullish on the outlook for COP.
Risk and Volatility
Analyst use beta to measure a stock’s volatility relative to the overall market. Stocks with a beta above 1 tend to have bigger swings in price than the market as a whole, the opposite being the case for stocks with a beta below 1. EPD has a beta of 0.89 and COP’s beta is 1.21. EPD’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. EPD has a short ratio of 4.95 compared to a short interest of 4.25 for COP. This implies that the market is currently less bearish on the outlook for COP.
Enterprise Products Partners L.P. (NYSE:EPD) beats ConocoPhillips (NYSE:COP) on a total of 8 of the 14 factors compared between the two stocks. EPD is growing fastly, is more profitable and generates a higher return on investment. In terms of valuation, EPD is the cheaper of the two stocks on an earnings and sales basis, EPD is more undervalued relative to its price target.