Dominion Energy, Inc. (NYSE:D) shares are up more than 14.75% this year and recently decreased -1.34% or -$1.11 to settle at $82.00. Edgewell Personal Care Company (NYSE:EPC), on the other hand, is down -18.39% year to date as of 12/02/2019. It currently trades at $30.48 and has returned 0.59% during the past week.
Dominion Energy, Inc. (NYSE:D) and Edgewell Personal Care Company (NYSE:EPC) are the two most active stocks in the Electric Utilities 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.
One of the key things investors look for in a company is the ability to grow earnings at a high compound rate over time. Analysts expect D to grow earnings at a 4.41% annual rate over the next 5 years. Comparatively, EPC is expected to grow at a 0.00% annual rate. All else equal, D’s higher growth rate would imply a greater potential for capital appreciation.
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. Dominion Energy, Inc. (D) has an EBITDA margin of 20.33%. This suggests that D underlying business is more profitable D’s ROI is 5.50% while EPC has a ROI of -14.60%. The interpretation is that D’s business generates a higher return on investment than EPC’s.Cash Flow
The value of a stock is simply the present value of its future free cash flows. D’s free cash flow (“FCF”) per share for the trailing twelve months was -0.84. Comparatively, EPC’s free cash flow per share was +1.35. On a percent-of-sales basis, D’s free cash flow was -5.17% while EPC converted 3.42% of its revenues into cash flow. This means that, for a given level of sales, EPC is able to generate more free cash flow for investors.
Balance sheet risk is one of the biggest factors to consider before investing. D has a current ratio of 0.50 compared to 1.60 for EPC. This means that EPC can more easily cover its most immediate liabilities over the next twelve months. D’s debt-to-equity ratio is 1.48 versus a D/E of 0.94 for EPC. D is therefore the more solvent of the two companies, and has lower financial risk.Valuation
D trades at a forward P/E of 18.72, a P/B of 2.41, and a P/S of 4.36, compared to a forward P/E of 9.62, a P/B of 1.27, and a P/S of 0.78 for EPC. D 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
A cheap stock isn’t a good investment if the stock is priced accurately. To get a sense of “value” we must compare the current price to some measure of intrinsic value such as a price target. D is currently priced at a -3.19% to its one-year price target of 84.70. Comparatively, EPC is -14.48% relative to its price target of 35.64. This suggests that EPC 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. D has a beta of 0.21 and EPC’s beta is 0.81. D’s shares are therefore the less volatile of the two stocks.Insider Activity and Investor Sentiment
Comparing the number of shares sold short to the float is a method analysts often use to get a reading on investor sentiment. D has a short ratio of 4.91 compared to a short interest of 7.37 for EPC. This implies that the market is currently less bearish on the outlook for D.
Edgewell Personal Care Company (NYSE:EPC) beats Dominion Energy, Inc. (NYSE:D) on a total of 8 of the 14 factors compared between the two stocks. EPC is growing fastly, has a higher cash conversion rate, higher liquidity and has lower financial risk. In terms of valuation, EPC is the cheaper of the two stocks on an earnings, book value and sales basis, EPC is more undervalued relative to its price target.