Hess Corporation (NYSE:HES) shares are up more than 41.54% this year and recently decreased -7.41% or -$5.38 to settle at $67.19. Las Vegas Sands Corp. (NYSE:LVS), on the other hand, is down -18.94% year to date as of 10/10/2018. It currently trades at $56.33 and has returned -7.38% during the past week.
Hess Corporation (NYSE:HES) and Las Vegas Sands Corp. (NYSE:LVS) 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.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, LVS is expected to grow at a 7.01% annual rate. All else equal, LVS’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. EBITDA margin of 36.07% for Las Vegas Sands Corp. (LVS). HES’s ROI is -19.60% while LVS has a ROI of 19.50%. The interpretation is that LVS’s business generates a higher return on investment than HES’s.Cash Flow
Earnings don’t always accurately reflect the amount of cash that a company brings in. HES’s free cash flow (“FCF”) per share for the trailing twelve months was -0.52. Comparatively, LVS’s free cash flow per share was +0.03. On a percent-of-sales basis, HES’s free cash flow was -2.85% while LVS converted 0.18% of its revenues into cash flow. This means that, for a given level of sales, LVS 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. HES has a current ratio of 2.40 compared to 1.70 for LVS. This means that HES can more easily cover its most immediate liabilities over the next twelve months. HES’s debt-to-equity ratio is 0.65 versus a D/E of 1.58 for LVS. LVS is therefore the more solvent of the two companies, and has lower financial risk.Valuation
HES trades at a forward P/E of 58.07, a P/B of 2.00, and a P/S of 3.40, compared to a forward P/E of 15.52, a P/B of 6.21, and a P/S of 3.32 for LVS. HES 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”. HES is currently priced at a -9.39% to its one-year price target of 74.15. Comparatively, LVS is -29.09% relative to its price target of 79.44. This suggests that LVS is the better investment over the next year.
Risk and Volatility
No discussion on value is complete without taking into account risk. Analysts use a stock’s beta, which measures the volatility of a stock compared to the overall market, to measure systematic risk. A stock with a beta above 1 is more volatile than the market. Conversely, a beta below 1 implies a below average level of risk. HES has a beta of 1.42 and LVS’s beta is 1.60. HES’s shares are therefore the less volatile of the two stocks.Insider Activity and Investor Sentiment
Analysts often look at short interest, or the percentage of a company’s float currently being shorted by investors, to aid in their outlook for a particular stock. HES has a short ratio of 5.71 compared to a short interest of 2.08 for LVS. This implies that the market is currently less bearish on the outlook for LVS.Summary
Las Vegas Sands Corp. (NYSE:LVS) beats Hess Corporation (NYSE:HES) on a total of 10 of the 14 factors compared between the two stocks. LVS higher liquidity, is more profitable, generates a higher return on investment, has higher cash flow per share and has a higher cash conversion rate. In terms of valuation, LVS is the cheaper of the two stocks on an earnings and sales basis, LVS is more undervalued relative to its price target. Finally, LVS has better sentiment signals based on short interest.