Hormel Foods Corporation (NYSE:HRL) shares are up more than 2.32% this year and recently increased 1.77% or $0.76 to settle at $43.67. Rayonier Inc. (NYSE:RYN), on the other hand, is up 0.94% year to date as of 09/10/2019. It currently trades at $27.95 and has returned 4.84% during the past week.
Hormel Foods Corporation (NYSE:HRL) and Rayonier Inc. (NYSE:RYN) are the two most active stocks in the Meat Products 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 HRL to grow earnings at a 5.00% annual rate over the next 5 years. Comparatively, RYN is expected to grow at a 5.00% annual rate. All else equal, All else equal, the two stocks’ identical expected growth rates would imply a similar potential for capital appreciation..
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. , compared to an EBITDA margin of 18.73% for Rayonier Inc. (RYN). HRL’s ROI is 15.40% while RYN has a ROI of 5.70%. The interpretation is that HRL’s business generates a higher return on investment than RYN’s.Cash Flow
The amount of free cash flow available to investors is ultimately what determines the value of a stock. HRL’s free cash flow (“FCF”) per share for the trailing twelve months was +0.05. Comparatively, RYN’s free cash flow per share was -0.04. On a percent-of-sales basis, HRL’s free cash flow was 0.28% while RYN converted -0% of its revenues into cash flow. This means that, for a given level of sales, HRL is able to generate more free cash flow for investors.
Balance sheet risk is one of the biggest factors to consider before investing. HRL has a current ratio of 2.10 compared to 2.60 for RYN. This means that RYN can more easily cover its most immediate liabilities over the next twelve months. HRL’s debt-to-equity ratio is 0.00 versus a D/E of 0.00 for RYN. HRL is therefore the more solvent of the two companies, and has lower financial risk.Valuation
HRL trades at a forward P/E of 24.88, a P/B of 3.96, and a P/S of 2.45, compared to a forward P/E of 44.65, a P/B of 2.41, and a P/S of 4.85 for RYN. 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. HRL is currently priced at a 12.26% to its one-year price target of 38.90. Comparatively, RYN is -7.73% relative to its price target of 30.29. This suggests that RYN is the better investment over the next year.
Risk and Volatility
Beta is an important measure that gives investors a sense of the market risk associated with a particular stock. A beta above 1 signals above average market risk, while a beta below 1 implies below average volatility. HRL has a beta of 0.05 and RYN’s beta is 0.79. HRL’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. HRL has a short ratio of 15.10 compared to a short interest of 2.61 for RYN. This implies that the market is currently less bearish on the outlook for RYN.
Rayonier Inc. (NYSE:RYN) beats Hormel Foods Corporation (NYSE:HRL) on a total of 7 of the 14 factors compared between the two stocks. RYN generates a higher return on investment, higher liquidity and has lower financial risk. RYN is more undervalued relative to its price target. Finally, RYN has better sentiment signals based on short interest.