Rayonier Advanced Materials (NYSE: RYAM) and Stepan (NYSE:SCL) are both small-cap basic materials companies, but which is the superior investment? We will contrast the two businesses based on the strength of their earnings, institutional ownership, risk, analyst recommendations, profitability, valuation and dividends.

Analyst Recommendations

This is a summary of recent recommendations and price targets for Rayonier Advanced Materials and Stepan, as provided by MarketBeat.com.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Rayonier Advanced Materials 0 0 5 0 3.00
Stepan 0 2 2 1 2.80

Rayonier Advanced Materials currently has a consensus price target of $18.80, suggesting a potential upside of 33.90%. Stepan has a consensus price target of $36.25, suggesting a potential downside of 58.25%. Given Rayonier Advanced Materials’ stronger consensus rating and higher possible upside, equities research analysts plainly believe Rayonier Advanced Materials is more favorable than Stepan.

Dividends

Rayonier Advanced Materials pays an annual dividend of $0.28 per share and has a dividend yield of 2.0%. Stepan pays an annual dividend of $0.82 per share and has a dividend yield of 0.9%. Rayonier Advanced Materials pays out 35.0% 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 raised its dividend for 49 consecutive years.

Earnings and Valuation

This table compares Rayonier Advanced Materials and Stepan’s gross revenue, earnings per share and valuation.

Gross Revenue Price/Sales Ratio EBITDA Earnings Per Share Price/Earnings Ratio
Rayonier Advanced Materials $840.05 million 0.72 $202.73 million $0.80 17.55
Stepan $1.83 billion 1.07 $207.56 million $3.81 22.79

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

Volatility & Risk

Rayonier Advanced Materials has a beta of 4.27, suggesting that its stock price is 327% more volatile than the S&P 500. Comparatively, Stepan has a beta of 1.28, suggesting that its stock price is 28% more volatile than the S&P 500.

Profitability

This table compares Rayonier Advanced Materials and Stepan’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Rayonier Advanced Materials 5.71% 24.17% 3.63%
Stepan 4.85% 14.95% 7.28%

Institutional & Insider Ownership

93.5% of Rayonier Advanced Materials shares are owned by institutional investors. Comparatively, 62.5% of Stepan shares are owned by institutional investors. 2.1% of Rayonier Advanced Materials shares are owned by insiders. Comparatively, 13.1% of Stepan shares are owned by insiders. Strong institutional ownership is an indication that endowments, hedge funds and large money managers believe a stock is poised for long-term growth.

Summary

Stepan beats Rayonier Advanced Materials on 10 of the 18 factors compared between the two stocks.

About Rayonier Advanced Materials

Rayonier Advanced Materials Inc. is engaged in the production of cellulose specialties. The Company’s product lines include cellulose specialties and commodity products. Its products are used in manufacturing processes. The Company’s products are sold throughout the world to companies for use in various industrial applications, and to produce a range of products, including cigarette filters, foods, pharmaceuticals, textiles and electronics. The Company focuses on producing various forms of cellulose specialties products, such as cellulose acetate and cellulose ethers. The Company’s production facilities are located in Jesup, Georgia and Fernandina Beach, Florida. The Jesup plant can produce cellulose specialties or commodity products using both hardwood and softwood in a pre-hydrolyzed kraft or high potential of hydrogen (pH) cooking process. The Fernandina Beach plant can produce cellulose specialties or commodity products using softwood in a sulfite or low pH cooking process.

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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