Suncor Energy Inc. (NYSE:SU) shares are up more than 15.12% this year and recently increased 3.27% or $1.02 to settle at $32.20. Cadence Bancorporation (NYSE:CADE), on the other hand, is down -1.19% year to date as of 11/07/2019. It currently trades at $16.58 and has returned 7.80% during the past week.
Suncor Energy Inc. (NYSE:SU) and Cadence Bancorporation (NYSE:CADE) 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.
Companies that can consistently grow earnings at a high compound rate usually have the greatest potential to create value for shareholders in the long-run. Analysts expect SU to grow earnings at a 5.53% annual rate over the next 5 years.
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 75.67% for Cadence Bancorporation (CADE). SU’s ROI is 7.70% while CADE has a ROI of 18.80%. The interpretation is that CADE’s business generates a higher return on investment than SU’s.Cash Flow
Cash is king when it comes to investing. On a percent-of-sales basis, SU’s free cash flow was 0% while CADE converted 0% of its revenues into cash flow. This means that, for a given level of sales, SU is able to generate more free cash flow for investors.
SU’s debt-to-equity ratio is 0.39 versus a D/E of 0.11 for CADE. SU is therefore the more solvent of the two companies, and has lower financial risk.
SU trades at a forward P/E of 13.06, a P/B of 1.46, and a P/S of 1.76, compared to a forward P/E of 8.73, a P/B of 0.88, and a P/S of 2.95 for CADE. SU is the cheaper of the two stocks on sales basis but is expensive in terms of P/E and P/B 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
A cheap stock is not necessarily a value stock. Most of the time, a stock is cheap for good reason. A stock only has value if the current price is substantially below the price at which it should trade in the future. SU is currently priced at a -24.82% to its one-year price target of 42.83. Comparatively, CADE is -4.05% relative to its price target of 17.28. This suggests that SU is the better investment over the next year.
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. SU has a short ratio of 3.04 compared to a short interest of 3.62 for CADE. This implies that the market is currently less bearish on the outlook for SU.
Cadence Bancorporation (NYSE:CADE) beats Suncor Energy Inc. (NYSE:SU) on a total of 6 of the 14 factors compared between the two stocks. CADE is growing fastly, generates a higher return on investment and has lower financial risk. In terms of valuation, CADE is the cheaper of the two stocks on an earnings and book value,