Head to Head Survey: Stepan (NYSE:SCL) and Valhi (NYSE:VHI)

Stepan (NYSE:SCL) and Valhi (NYSE:VHI) are both small-cap basic materials companies, but which is the superior stock? We will compare the two companies based on the strength of their profitability, valuation, risk, analyst recommendations, earnings, dividends and institutional ownership.

Profitability

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

	Net Margins	Return on Equity	Return on Assets
Stepan	2.57%	4.78%	2.42%
Valhi	4.69%	7.02%	3.53%

Insider & Institutional Ownership

82.7% of Stepan shares are owned by institutional investors. Comparatively, 3.8% of Valhi shares are owned by institutional investors. 6.9% of Stepan shares are owned by company insiders. Comparatively, 0.2% of Valhi shares are owned by company insiders. Strong institutional ownership is an indication that large money managers, endowments and hedge funds believe a company is poised for long-term growth.

Earnings & Valuation

This table compares Stepan and Valhi”s top-line revenue, earnings per share and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
Stepan	$2.18 billion	0.50	$50.37 million	$2.54	18.79
Valhi	$2.10 billion	0.21	$108.00 million	$3.43	4.59

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

Volatility and Risk

Stepan has a beta of 0.96, suggesting that its share price is 4% less volatile than the S&P 500. Comparatively, Valhi has a beta of 1.17, suggesting that its share price is 17% more volatile than the S&P 500.

Analyst Recommendations

This is a summary of current recommendations for Stepan and Valhi, as reported by MarketBeat.com.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
Stepan	1	0	0	0	1.00
Valhi	1	0	0	0	1.00

Valhi has a consensus price target of $12.00, suggesting a potential downside of 23.79%. Given Valhi’s higher probable upside, analysts clearly believe Valhi is more favorable than Stepan.

Dividends

Stepan pays an annual dividend of $1.54 per share and has a dividend yield of 3.2%. Valhi pays an annual dividend of $0.32 per share and has a dividend yield of 2.0%. Stepan pays out 60.6% of its earnings in the form of a dividend. Valhi pays out 9.3% 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 57 consecutive years. Stepan is clearly the better dividend stock, given its higher yield and longer track record of dividend growth.

Summary

Valhi beats Stepan on 8 of the 15 factors compared between the two stocks.

About Stepan

Stepan Company, together with its subsidiaries, produces and sells specialty and intermediate chemicals to other manufacturers for use in various end products worldwide. It operates through three segments: Surfactants, Polymers, and Specialty Products. The Surfactants segment offers surfactants that are used in consumer and industrial cleaning and disinfection products, including detergents for washing clothes, dishes, carpets, and floors and walls, as well as shampoos and body washes; and other applications, such as fabric softeners, germicidal quaternary compounds, disinfectants, and lubricating ingredients. Its surfactants are also used in various applications, including emulsifiers for spreading agricultural products; and industrial applications comprising latex systems, plastics, and composites. The Polymers segment provides polyurethane polyols that are used in the manufacture of rigid foam for thermal insulation in the construction industry, as well as a base raw material for coatings, adhesives, sealants, and elastomers (CASE); polyester resins, including liquid and powdered products, which are used in CASE applications; and phthalic anhydride that is used in unsaturated polyester resins, alkyd resins, and plasticizers for applications in construction materials, as well as components of automotive, boating, and other consumer products. The Specialty Products segment offers flavors, emulsifiers, and solubilizers for use in food, flavoring, nutritional supplement, and pharmaceutical applications. Stepan Company was founded in 1932 and is headquartered in Northbrook, Illinois.

About Valhi

Valhi, Inc. engages in the chemicals, component products, and real estate management and development businesses in Europe, North America, the Asia Pacific, and internationally. The company’s Chemicals segment produces and markets titanium dioxide pigments (TiO2), which are white inorganic pigments used in various applications by paint, plastics, decorative laminate, and paper manufacturers. It offers TiO2 under the KRONOS name through agents and distributors. The company’s Component Products segment manufactures mechanical and electrical cabinet locks, and other locking mechanisms for use in ignition systems, mailboxes, file cabinets, desk drawers, tool storage cabinets, vending and cash containment machines, integrated inventory and access control secured narcotics boxes, medical cabinetry security, electronic circuit panels, storage compartments, and gas station security applications. It also provides stainless steel exhaust components, gauges, throttle controls, wake enhancement systems, trim tabs, and related hardware and accessories primarily for performance and ski/wakeboard boats. The company’s Real Estate Management and Development segment offers utility services to industrial and municipal customers; owns real properties; and develops land holdings for commercial, industrial, and residential purposes. It also holds marketable securities and other investments. The company was incorporated in 1932 and is based in Dallas, Texas. Valhi, Inc. is a subsidiary of Dixie Rice Agricultural L.L.C.