Valvoline (NYSE: VVV) and Stepan (NYSE:SCL) are both basic materials companies, but which is the better investment? We will contrast the two businesses based on the strength of their profitability, valuation, analyst recommendations, dividends, risk, institutional ownership and earnings.

Dividends

Valvoline pays an annual dividend of $0.20 per share and has a dividend yield of 0.8%. Stepan pays an annual dividend of $0.82 per share and has a dividend yield of 0.9%. Valvoline pays out 15.5% of its earnings in the form of a dividend. Stepan pays out 21.5% of its earnings in the form of a dividend. Both companies have healthy payout ratios and should be able to cover their dividend payments with earnings for the next several years. Stepan has increased its dividend for 49 consecutive years. Stepan is clearly the better dividend stock, given its higher yield and longer track record of dividend growth.

Insider & Institutional Ownership

92.3% of Valvoline shares are owned by institutional investors. Comparatively, 62.5% of Stepan shares are owned by institutional investors. 0.1% of Valvoline shares are owned by company insiders. Comparatively, 13.1% of Stepan shares are owned by company insiders. Strong institutional ownership is an indication that endowments, hedge funds and large money managers believe a company will outperform the market over the long term.

Profitability

This table compares Valvoline and Stepan’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Valvoline 13.00% -106.06% 14.55%
Stepan 4.85% 14.95% 7.28%

Analyst Ratings

This is a breakdown of current recommendations and price targets for Valvoline and Stepan, as reported by MarketBeat.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Valvoline 0 3 3 0 2.50
Stepan 0 2 2 1 2.80

Valvoline currently has a consensus target price of $25.00, indicating a potential upside of 4.04%. Stepan has a consensus target price of $36.25, indicating a potential downside of 58.25%. Given Valvoline’s higher possible upside, research analysts plainly believe Valvoline is more favorable than Stepan.

Earnings and Valuation

This table compares Valvoline and Stepan’s gross revenue, earnings per share and valuation.

Gross Revenue Price/Sales Ratio EBITDA Earnings Per Share Price/Earnings Ratio
Valvoline $2.03 billion 2.40 $520.00 million $1.29 18.63
Stepan $1.83 billion 1.07 $207.56 million $3.81 22.79

Valvoline has higher revenue and earnings than Stepan. Valvoline is trading at a lower price-to-earnings ratio than Stepan, indicating that it is currently the more affordable of the two stocks.

Summary

Valvoline beats Stepan on 9 of the 17 factors compared between the two stocks.

About Valvoline

Valvoline Inc. (Valvoline) is engaged in the production and distribution of automotive, commercial and industrial lubricants, and automotive chemicals. The Company operates through three segments: Core North America, Quick Lubes and International. The Core North America segment sells Valvoline, and other branded and private label products in the United States and Canada to both consumers performing their own automotive maintenance, referred to as Do-It-Yourself (DIY) consumers, as well as, to installer customers using Valvoline products to service vehicles owned by Do-It-For-Me (DIFM) consumers. Its Quick Lubes segment services the passenger car and light truck quick lube market through platforms, including its franchised Valvoline Instant Oil Change (VIOC) stores and Express Care. Its International segment sells Valvoline and other branded products through its affiliates, joint ventures, licensees and independent distributors. Its products include All Climate, DuraBlend and MaxLife.

About Stepan

Stepan Company produces specialty and intermediate chemicals, which are sold to other manufacturers and used in a range of end products. The Company operates through three segments: Surfactants, Polymers and Specialty Products. The Company’s principal markets include manufacturers of cleaning and washing compounds (including detergents, shampoos, fabric softeners, toothpastes and household cleaners), paints, cosmetics, food, beverages, nutritional supplements, agricultural products and plastics. Its Surfactants segment offers products, which are principal ingredients in consumer and industrial cleaning products, such as detergents for washing clothes, dishes, carpets, floors and walls, as well as shampoos and body washes. Its Polymers segment includes polyurethane polyols, polyester resins and phthalic anhydride. Its Specialty Products segment includes flavors, emulsifiers and solubilizers used in food, flavoring, nutritional supplement and pharmaceutical applications.

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