News Corporation (NASDAQ:NWSA) shares are up more than 23.61% this year and recently increased 2.41% or $0.33 to settle at $14.03. HollyFrontier Corporation (NYSE:HFC), on the other hand, is down -8.72% year to date as of 08/12/2019. It currently trades at $46.66 and has returned -4.39% during the past week.
News Corporation (NASDAQ:NWSA) and HollyFrontier Corporation (NYSE:HFC) are the two most active stocks in the Broadcasting – TV industry based on today’s trading volumes. To determine if one is a better investment than the other, we will compare the two companies’ growth, profitability, risk, return, and valuation characteristics, as well as their analyst ratings and sentiment signals.
Companies that can increase earnings at a high compound rate over time are attractive to investors. Analysts expect NWSA to grow earnings at a 12.14% annual rate over the next 5 years. Comparatively, HFC is expected to grow at a -5.56% annual rate. All else equal, NWSA’s higher growth rate would imply a greater potential for capital appreciation.
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 10.27% for HollyFrontier Corporation (HFC). NWSA’s ROI is -8.30% while HFC has a ROI of 15.20%. The interpretation is that HFC’s business generates a higher return on investment than NWSA’s.Cash Flow
The value of a stock is simply the present value of its future free cash flows. NWSA’s free cash flow (“FCF”) per share for the trailing twelve months was +0.09. Comparatively, HFC’s free cash flow per share was +3.75. On a percent-of-sales basis, NWSA’s free cash flow was 0.58% while HFC converted 3.48% of its revenues into cash flow. This means that, for a given level of sales, HFC is able to generate more free cash flow for investors.
Liquidity and leverage ratios measure a company’s ability to meet short-term obligations and longer-term debts. NWSA has a current ratio of 1.20 compared to 2.10 for HFC. This means that HFC can more easily cover its most immediate liabilities over the next twelve months. NWSA’s debt-to-equity ratio is 0.17 versus a D/E of 0.41 for HFC. HFC is therefore the more solvent of the two companies, and has lower financial risk.Valuation
NWSA trades at a forward P/E of 28.29, a P/B of 0.88, and a P/S of 0.76, compared to a forward P/E of 8.75, a P/B of 1.31, and a P/S of 0.45 for HFC. NWSA 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
Just because a stock is cheaper doesn’t mean there’s more value to be had. In order to assess value we need to compare the current price to where it’s likely to trade in the future. NWSA is currently priced at a -0.07% to its one-year price target of 14.04. Comparatively, HFC is -16.21% relative to its price target of 55.69. This suggests that HFC is the better investment over the next year.
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. NWSA has a beta of 1.50 and HFC’s beta is 1.43. HFC’s shares are therefore the less volatile of the two stocks.Insider Activity and Investor Sentiment
Short interest is another tool that analysts use to gauge investor sentiment. It represents the percentage of a stock’s tradable shares that are being shorted. NWSA has a short ratio of 3.04 compared to a short interest of 3.11 for HFC. This implies that the market is currently less bearish on the outlook for NWSA.
HollyFrontier Corporation (NYSE:HFC) beats News Corporation (NASDAQ:NWSA) on a total of 9 of the 14 factors compared between the two stocks. HFC is growing fastly, has higher cash flow per share, has a higher cash conversion rate and higher liquidity. In terms of valuation, HFC is the cheaper of the two stocks on an earnings and sales basis, HFC is more undervalued relative to its price target.