Corteva, Inc. (CTVA) vs. SemGroup Corporation (SEMG): Comparing the Agricultural Chemicals Industry’s Most Active Stocks

Corteva, Inc. (NYSE:CTVA) shares are down more than -1.52% this year and recently decreased -0.66% or -$0.19 to settle at $28.56. SemGroup Corporation (NYSE:SEMG), on the other hand, is down -30.26% year to date as of 09/10/2019. It currently trades at $9.61 and has returned 13.59% during the past week.

Corteva, Inc. (NYSE:CTVA) and SemGroup Corporation (NYSE:SEMG) are the two most active stocks in the Agricultural Chemicals industry based on today’s trading volumes. The market is clearly enthusiastic about both these stocks, but which is the better investment? To answer this, we will compare the two companies based on the strength of their growth, profitability, risk, returns, valuation, analyst recommendations, and insider trends.

Growth

The ability to grow earnings at a compound rate over time is a crucial determinant of investment value. Analysts expect CTVA to grow earnings at a 5.12% annual rate over the next 5 years.

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 19.19% for SemGroup Corporation (SEMG). CTVA’s ROI is -6.10% while SEMG has a ROI of 3.80%. The interpretation is that SEMG’s business generates a higher return on investment than CTVA’s.

Cash Flow

The value of a stock is simply the present value of its future free cash flows. CTVA’s free cash flow (“FCF”) per share for the trailing twelve months was +0.17. Comparatively, SEMG’s free cash flow per share was -1.76. On a percent-of-sales basis, CTVA’s free cash flow was 0.89% while SEMG converted -5.6% of its revenues into cash flow. This means that, for a given level of sales, CTVA 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. CTVA has a current ratio of 1.70 compared to 1.40 for SEMG. This means that CTVA can more easily cover its most immediate liabilities over the next twelve months. CTVA’s debt-to-equity ratio is 0.08 versus a D/E of 1.91 for SEMG. SEMG is therefore the more solvent of the two companies, and has lower financial risk.

Valuation

CTVA trades at a forward P/E of 18.39, a P/B of 0.83, and a P/S of 1.57, compared to a P/B of 0.57, and a P/S of 0.30 for SEMG. CTVA is the expensive of the two stocks on an earnings, book value and sales basis. 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”. CTVA is currently priced at a -13.01% to its one-year price target of 32.83. Comparatively, SEMG is -18.63% relative to its price target of 11.81. This suggests that SEMG is the better investment over the next year.

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. CTVA has a short ratio of 1.64 compared to a short interest of 6.55 for SEMG. This implies that the market is currently less bearish on the outlook for CTVA.

Summary

Corteva, Inc. (NYSE:CTVA) beats SemGroup Corporation (NYSE:SEMG) on a total of 9 of the 14 factors compared between the two stocks. CTVA is growing fastly, is more profitable, has higher cash flow per share, has a higher cash conversion rate, higher liquidity and has lower financial risk. Finally, CTVA has better sentiment signals based on short interest.