Finance

Choosing Between Energy Transfer Partners, L.P. (ETP) and Seagate Technology plc (STX)

Energy Transfer Partners, L.P. (NYSE:ETP) shares are up more than 21.65% this year and recently decreased -1.93% or -$0.43 to settle at $21.80. Seagate Technology plc (NASDAQ:STX), on the other hand, is up 4.35% year to date as of 10/10/2018. It currently trades at $43.66 and has returned -8.64% during the past week.

Energy Transfer Partners, L.P. (NYSE:ETP) and Seagate Technology plc (NASDAQ:STX) are the two most active stocks in the Oil & Gas Pipelines industry based on today’s trading volumes. Investor interest in the two stocks is clearly very high, but which is the better investment? To answer this question, we will compare the two companies across growth, profitability, risk, and valuation metrics, and also examine their analyst ratings and insider activity trends.

Growth

One of the key things investors look for in a company is the ability to grow earnings at a high compound rate over time. Comparatively, STX is expected to grow at a 7.12% annual rate. All else equal, STX’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. , compared to an EBITDA margin of 18.5% for Seagate Technology plc (STX). ETP’s ROI is 3.30% while STX has a ROI of 29.60%. The interpretation is that STX’s business generates a higher return on investment than ETP’s.

Cash Flow



Earnings don’t always accurately reflect the amount of cash that a company brings in. ETP’s free cash flow (“FCF”) per share for the trailing twelve months was -1.38. Comparatively, STX’s free cash flow per share was +0.65. On a percent-of-sales basis, ETP’s free cash flow was -5.54% while STX converted 1.67% of its revenues into cash flow. This means that, for a given level of sales, STX is able to generate more free cash flow for investors.

Liquidity and Financial Risk

Liquidity and leverage ratios measure a company’s ability to meet short-term obligations and longer-term debts. ETP has a current ratio of 1.00 compared to 1.40 for STX. This means that STX can more easily cover its most immediate liabilities over the next twelve months. ETP’s debt-to-equity ratio is 1.33 versus a D/E of 2.89 for STX. STX is therefore the more solvent of the two companies, and has lower financial risk.

Valuation

ETP trades at a forward P/E of 13.29, a P/B of 0.99, and a P/S of 0.76, compared to a forward P/E of 7.22, a P/B of 7.55, and a P/S of 1.12 for STX. 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 isn’t a good investment if the stock is priced accurately. To get a sense of “value” we must compare the current price to some measure of intrinsic value such as a price target. ETP is currently priced at a -18.2% to its one-year price target of 26.65. Comparatively, STX is -23.47% relative to its price target of 57.05. This suggests that STX is the better investment over the next year.

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. ETP has a beta of 1.25 and STX’s beta is 1.67. ETP’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. ETP has a short ratio of 1.97 compared to a short interest of 7.87 for STX. This implies that the market is currently less bearish on the outlook for ETP.

Summary

Seagate Technology plc (NASDAQ:STX) beats Energy Transfer Partners, L.P. (NYSE:ETP) on a total of 7 of the 14 factors compared between the two stocks. STX is more profitable, generates a higher return on investment, has higher cash flow per share, has a higher cash conversion rate and higher liquidity. STX is more undervalued relative to its price target. Finally, CFG has better sentiment signals based on short interest.

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