Comparing Valhi (NYSE:VHI) & Stepan (NYSE:SCL)

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

Earnings & Valuation

This table compares Valhi and Stepan”s gross revenue, earnings per share and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
Valhi	$2.09 billion	0.21	$108.00 million	$3.43	4.62
Stepan	$2.18 billion	0.51	$50.37 million	$2.54	19.36

Valhi has higher earnings, but lower revenue 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.

Insider and Institutional Ownership

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

Analyst Ratings

This is a breakdown of recent ratings for Valhi and Stepan, as provided by MarketBeat.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
Valhi	1	1	0	0	1.50
Stepan	1	1	0	0	1.50

Valhi presently has a consensus price target of $12.00, suggesting a potential downside of 24.24%. Given Valhi’s higher probable upside, equities analysts plainly believe Valhi is more favorable than Stepan.

Profitability

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

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

Dividends

Valhi pays an annual dividend of $0.32 per share and has a dividend yield of 2.0%. Stepan pays an annual dividend of $1.54 per share and has a dividend yield of 3.1%. Valhi pays out 9.3% of its earnings in the form of a dividend. Stepan pays out 60.6% 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 57 consecutive years. Stepan is clearly the better dividend stock, given its higher yield and longer track record of dividend growth.

Risk & Volatility

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

Summary

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

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.

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.