Critical Analysis: Peabody Energy (NYSE:BTU) & SandRidge Energy (NYSE:SD)

SandRidge Energy (NYSE:SD) and Peabody Energy (NYSE:BTU) are both energy companies, but which is the better business? We will compare the two companies based on the strength of their valuation, risk, earnings, dividends, institutional ownership, profitability and analyst recommendations.

Profitability

This table compares SandRidge Energy and Peabody Energy’s net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
SandRidge Energy	46.06%	13.62%	10.93%
Peabody Energy	-4.56%	-5.22%	-3.22%

Volatility and Risk

SandRidge Energy has a beta of 0.71, meaning that its share price is 29% less volatile than the S&P 500. Comparatively, Peabody Energy has a beta of 0.33, meaning that its share price is 67% less volatile than the S&P 500.

Institutional & Insider Ownership

61.8% of SandRidge Energy shares are owned by institutional investors. Comparatively, 87.4% of Peabody Energy shares are owned by institutional investors. 1.6% of SandRidge Energy shares are owned by company insiders. Comparatively, 0.5% of Peabody Energy shares are owned 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.

Valuation and Earnings

This table compares SandRidge Energy and Peabody Energy”s top-line revenue, earnings per share (EPS) and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
SandRidge Energy	$156.36 million	3.40	$70.20 million	$2.24	6.41
Peabody Energy	$3.86 billion	0.79	-$52.90 million	($1.50)	-16.80

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

Analyst Ratings

This is a summary of current ratings and price targets for SandRidge Energy and Peabody Energy, as provided by MarketBeat.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
SandRidge Energy	0	3	0	0	2.00
Peabody Energy	1	3	2	0	2.17

Peabody Energy has a consensus price target of $33.88, indicating a potential upside of 34.46%. Given Peabody Energy’s stronger consensus rating and higher probable upside, analysts clearly believe Peabody Energy is more favorable than SandRidge Energy.

Dividends

SandRidge Energy pays an annual dividend of $0.52 per share and has a dividend yield of 3.6%. Peabody Energy pays an annual dividend of $0.30 per share and has a dividend yield of 1.2%. SandRidge Energy pays out 23.2% of its earnings in the form of a dividend. Peabody Energy pays out -20.0% 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. SandRidge Energy has raised its dividend for 2 consecutive years and Peabody Energy has raised its dividend for 1 consecutive years. SandRidge Energy is clearly the better dividend stock, given its higher yield and longer track record of dividend growth.

Summary

SandRidge Energy beats Peabody Energy on 10 of the 16 factors compared between the two stocks.

About SandRidge Energy

SandRidge Energy, Inc. engages in the acquisition, development, and production of oil, natural gas, and natural gas liquids in the United States Mid-Continent. The company was incorporated in 2006 and is headquartered in Oklahoma City, Oklahoma.

About Peabody Energy

Peabody Energy Corporation engages in coal mining business in the United States, Japan, Taiwan, Australia, India, Brazil, Belgium, Chile, France, Indonesia, China, Vietnam, South Korea, Germany, and internationally. The company operates through Seaborne Thermal, Seaborne Metallurgical, Powder River Basin, Other U.S. Thermal, and Corporate and Other segments. It is involved in the mining, preparation, and sale of thermal coal primarily to electric utilities; mining bituminous and sub-bituminous coal deposits; low sulfur and high British thermal unit thermal coal; and mining metallurgical coal, such as hard coking coal, semi-hard coking coal, semi-soft coking coal, and pulverized coal injection coal. The company supplies coal primarily to electricity generators, industrial facilities, and steel manufacturers. It also engages in marketing and brokering of coal from other coal producers; trading of coal and freight-related contracts, as well as provides transportation-related services. The company was founded in 1883 and is headquartered in Saint Louis, Missouri.