Finance

Choosing Between CenterPoint Energy, Inc. (CNP) and Newmont Mining Corporation (NEM)

CenterPoint Energy, Inc. (NYSE:CNP) shares are down more than -10.83% this year and recently decreased -0.82% or -$0.21 to settle at $25.29. Newmont Mining Corporation (NYSE:NEM), on the other hand, is up 4.90% year to date as of 05/17/2018. It currently trades at $39.36 and has returned -2.62% during the past week.

CenterPoint Energy, Inc. (NYSE:CNP) and Newmont Mining Corporation (NYSE:NEM) 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.

Growth

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 8.21% annual rate over the next 5 years. Comparatively, NEM is expected to grow at a 9.49% annual rate. All else equal, NEM’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., compared to an EBITDA margin of 29.47% for Newmont Mining Corporation (NEM). CNP’s ROI is 4.80% while NEM has a ROI of 5.90%. The interpretation is that NEM’s business generates a higher return on investment than CNP’s.

Cash Flow



Cash is king when it comes to investing. CNP’s free cash flow (“FCF”) per share for the trailing twelve months was +0.04. Comparatively, NEM’s free cash flow per share was -0.08. On a percent-of-sales basis, CNP’s free cash flow was 0.18% while NEM converted -0.58% 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

Analysts look at liquidity and leverage ratios to assess how easily a company can cover its liabilities. CNP has a current ratio of 1.20 compared to 4.20 for NEM. This means that NEM can more easily cover its most immediate liabilities over the next twelve months. CNP’s debt-to-equity ratio is 1.95 versus a D/E of 0.39 for NEM. CNP is therefore the more solvent of the two companies, and has lower financial risk.

Valuation

CNP trades at a forward P/E of 15.08, a P/B of 2.24, and a P/S of 1.09, compared to a forward P/E of 22.98, a P/B of 1.99, and a P/S of 2.80 for NEM. 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. CNP is currently priced at a -9.29% to its one-year price target of 27.88. Comparatively, NEM is -11.61% relative to its price target of 44.53. This suggests that NEM is the better investment over the next year.

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. CNP has a beta of 0.53 and NEM’s beta is 0.31. NEM’s shares are therefore the less volatile of the two stocks.

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. CNP has a short ratio of 2.15 compared to a short interest of 1.46 for NEM. This implies that the market is currently less bearish on the outlook for NEM.

Summary

Newmont Mining Corporation (NYSE:NEM) beats CenterPoint Energy, Inc. (NYSE:CNP) on a total of 10 of the 14 factors compared between the two stocks. NEM has higher cash flow per share, is more profitable, generates a higher return on investment, higher liquidity and has lower financial risk. NEM is more undervalued relative to its price target. Finally, NEM has better sentiment signals based on short interest.

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