Critical Contrast: Stepan (SCL) and Trinseo (NYSE:TSE)

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

Profitability

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

Net Margins Return on Equity Return on Assets
Stepan 4.85% 14.95% 7.28%
Trinseo 7.88% 67.05% 13.27%

Insider & Institutional Ownership

62.6% of Stepan shares are owned by institutional investors. Comparatively, 97.8% of Trinseo shares are owned by institutional investors. 13.1% of Stepan shares are owned by insiders. Comparatively, 0.7% of Trinseo shares are owned by 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.

Analyst Ratings

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

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Stepan 0 3 1 1 2.60
Trinseo 0 2 3 0 2.60

Stepan presently has a consensus target price of $36.25, indicating a potential downside of 55.13%. Trinseo has a consensus target price of $74.25, indicating a potential upside of 9.19%. Given Trinseo’s higher possible upside, analysts clearly believe Trinseo is more favorable than Stepan.

Dividends

Stepan pays an annual dividend of $0.82 per share and has a dividend yield of 1.0%. Trinseo pays an annual dividend of $1.44 per share and has a dividend yield of 2.1%. Stepan pays out 21.5% of its earnings in the form of a dividend. Trinseo pays out 20.3% 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. Trinseo has raised its dividend for 49 consecutive years. Trinseo is clearly the better dividend stock, given its higher yield and longer track record of dividend growth.

Earnings & Valuation

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

Gross Revenue Price/Sales Ratio EBITDA Earnings Per Share Price/Earnings Ratio
Stepan $1.83 billion 0.99 $207.56 million $3.81 21.20
Trinseo $4.10 billion 0.73 $477.25 million $7.08 9.60

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

Risk & Volatility

Stepan has a beta of 1.26, suggesting that its share price is 26% more volatile than the S&P 500. Comparatively, Trinseo has a beta of 2.39, suggesting that its share price is 139% more volatile than the S&P 500.

Summary

Trinseo beats Stepan on 13 of the 17 factors compared between the two stocks.

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.

About Trinseo

Trinseo S.A. is a materials company engaged in the manufacture and marketing of synthetic rubber, latex and plastics. The Company’s segments include Latex Binders, Synthetic Rubber, Performance Plastics, Basic Plastics, Feedstocks and Americas Styrenics. The Latex Binders segment produces styrene-butadiene latex (SB latex) and other latex polymers and binders. The Synthetic Rubber segment produces synthetic rubber products used in tires, impact modifiers and technical rubber products. The Performance Plastics segment produces compounds and blends and specialized acrylonitrile-butadiene-styrene (ABS) grades. The Basic Plastics segment produces styrenic polymers, including polystyrene, basic ABS, and styrene-acrylonitrile (SAN) products, as well as polycarbonate (PC). The Feedstocks segment includes its production and procurement of styrene monomer outside of North America. The Americas Styrenics segment consists of the operations of its joint venture, Americas Styrenics LLC.

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