Domtar Corporation (NYSE: UFS) and Mercer International (NASDAQ:MERC) are both basic materials companies, but which is the superior business? We will contrast the two companies based on the strength of their dividends, valuation, earnings, profitability, analyst recommendations, risk and institutional ownership.
This table compares Domtar Corporation and Mercer International’s net margins, return on equity and return on assets.
|Net Margins||Return on Equity||Return on Assets|
This is a summary of recent ratings and price targets for Domtar Corporation and Mercer International, as reported by MarketBeat.
|Sell Ratings||Hold Ratings||Buy Ratings||Strong Buy Ratings||Rating Score|
Domtar Corporation currently has a consensus price target of $40.78, indicating a potential upside of 7.03%. Mercer International has a consensus price target of $15.25, indicating a potential upside of 41.86%. Given Mercer International’s stronger consensus rating and higher possible upside, analysts clearly believe Mercer International is more favorable than Domtar Corporation.
Domtar Corporation pays an annual dividend of $1.66 per share and has a dividend yield of 4.4%. Mercer International pays an annual dividend of $0.46 per share and has a dividend yield of 4.3%. Domtar Corporation pays out 63.4% of its earnings in the form of a dividend. Mercer International pays out 79.3% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. Domtar Corporation has raised its dividend for 7 consecutive years. Domtar Corporation is clearly the better dividend stock, given its higher yield and longer track record of dividend growth.
Earnings & Valuation
This table compares Domtar Corporation and Mercer International’s revenue, earnings per share and valuation.
|Gross Revenue||Price/Sales Ratio||EBITDA||Earnings Per Share||Price/Earnings Ratio|
|Domtar Corporation||$5.07 billion||0.47||$619.00 million||$2.62||14.54|
|Mercer International||$985.60 million||0.71||$205.86 million||$0.58||18.53|
Domtar Corporation has higher revenue and earnings than Mercer International. Domtar Corporation is trading at a lower price-to-earnings ratio than Mercer International, indicating that it is currently the more affordable of the two stocks.
Insider & Institutional Ownership
83.1% of Domtar Corporation shares are owned by institutional investors. Comparatively, 81.4% of Mercer International shares are owned by institutional investors. 1.0% of Domtar Corporation shares are owned by company insiders. Comparatively, 4.9% of Mercer International shares are owned by company insiders. Strong institutional ownership is an indication that hedge funds, large money managers and endowments believe a stock will outperform the market over the long term.
Volatility and Risk
Domtar Corporation has a beta of 1.49, indicating that its share price is 49% more volatile than the S&P 500. Comparatively, Mercer International has a beta of 1.57, indicating that its share price is 57% more volatile than the S&P 500.
Mercer International beats Domtar Corporation on 9 of the 17 factors compared between the two stocks.
About Domtar Corporation
Domtar Corporation designs, manufactures, markets and distributes a range of fiber-based products, including communication papers, specialty and packaging papers and absorbent hygiene products. The Company segments include Pulp and Paper and Personal Care. The Pulp and Paper segment consists of the design, manufacturing, marketing and distribution of communication, specialty and packaging papers, as well as softwood, fluff and hardwood market pulp. The Personal Care segment consists of the design, manufacturing, marketing and distribution of absorbent hygiene products. The Company is a marketer of uncoated freesheet paper in North America serving a range of customers, including merchants, retail outlets, stationers, printers, publishers, converters and end users. It is also a marketer and producer of a line of incontinence care products, as well as infant diapers. It has a network of wood fiber converting assets that produce paper grade, fluff and specialty pulp.
About Mercer International
Mercer International Inc. is a producer of northern bleached softwood kraft (NBSK) pulp, which is pulp that is sold on the open market. The Company also produces and sells tall oil, a by-product of its production process, which is used as both a chemical additive and as a green energy source. It produces and sells NBSK pulp, which is a bleached kraft pulp manufactured using northern softwood. As of December 31, 2016, the Company operated two mills in Eastern Germany and one mill in Western Canada. As of December 31, 2016, its three NBSK pulp mills had consolidated annual production capacity of approximately 1.5 million air-dried metric tons (ADMTs) of NBSK pulp and were capable of generating 305 megawatts (MW) of electricity. Additionally, its German mills generate tall oil from black liquor, which is sold to third parties for use in various applications, including bio-fuels. The Company’s mills generate and sell energy to regional utilities.
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