Head-To-Head Contrast: Domtar Corporation (NYSE:UFS) and Mercer International (MERC)

Mercer International (NASDAQ: MERC) and Domtar Corporation (NYSE:UFS) are both basic materials companies, but which is the superior stock? We will compare the two businesses based on the strength of their dividends, valuation, institutional ownership, analyst recommendations, profitability, risk and earnings.

Analyst Recommendations

This is a breakdown of current recommendations and price targets for Mercer International and Domtar Corporation, as provided by MarketBeat.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Mercer International 0 3 1 0 2.25
Domtar Corporation 2 6 4 0 2.17

Mercer International currently has a consensus price target of $15.25, suggesting a potential upside of 39.27%. Domtar Corporation has a consensus price target of $40.78, suggesting a potential upside of 2.66%. Given Mercer International’s stronger consensus rating and higher possible upside, analysts plainly believe Mercer International is more favorable than Domtar Corporation.

Dividends

Mercer International pays an annual dividend of $0.46 per share and has a dividend yield of 4.2%. Domtar Corporation pays an annual dividend of $1.66 per share and has a dividend yield of 4.2%. 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 pays out 63.4% of its earnings in the form of a dividend. Mercer International has raised its dividend for 7 consecutive years. Mercer International is clearly the better dividend stock, given its higher yield and longer track record of dividend growth.

Valuation & Earnings

This table compares Mercer International and Domtar Corporation’s top-line revenue, earnings per share (EPS) and valuation.

Gross Revenue Price/Sales Ratio EBITDA Earnings Per Share Price/Earnings Ratio
Mercer International $985.60 million 0.72 $205.86 million $0.58 18.88
Domtar Corporation $5.07 billion 0.49 $619.00 million $2.62 15.16

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.

Risk and Volatility

Mercer International has a beta of 1.57, suggesting that its share price is 57% more volatile than the S&P 500. Comparatively, Domtar Corporation has a beta of 1.49, suggesting that its share price is 49% more volatile than the S&P 500.

Insider & Institutional Ownership

81.4% of Mercer International shares are held by institutional investors. Comparatively, 91.5% of Domtar Corporation shares are held by institutional investors. 4.9% of Mercer International shares are held by insiders. Comparatively, 1.0% of Domtar Corporation shares are held by insiders. Strong institutional ownership is an indication that endowments, hedge funds and large money managers believe a company is poised for long-term growth.

Profitability

This table compares Mercer International and Domtar Corporation’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Mercer International 3.86% 11.90% 3.96%
Domtar Corporation 3.23% 6.47% 3.09%

Summary

Mercer International beats Domtar Corporation on 11 of the 17 factors compared between the two stocks.

Mercer International Company Profile

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.

Domtar Corporation Company Profile

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.

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