Critical Survey: Friedman Industries (NASDAQ:FRD) versus Franco-Nevada (NYSE:FNV)

Friedman Industries (NASDAQ:FRD) and Franco-Nevada (NYSE:FNV) are both materials companies, but which is the better stock? We will compare the two companies based on the strength of their valuation, analyst recommendations, institutional ownership, dividends, profitability, earnings and risk.

Volatility and Risk

Friedman Industries has a beta of 1.65, indicating that its share price is 65% more volatile than the S&P 500. Comparatively, Franco-Nevada has a beta of 0.36, indicating that its share price is 64% less volatile than the S&P 500.

Analyst Recommendations

This is a summary of current ratings and recommmendations for Friedman Industries and Franco-Nevada, as reported by MarketBeat.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
Friedman Industries	0	0	1	0	3.00
Franco-Nevada	0	5	9	0	2.64

Franco-Nevada has a consensus target price of $267.80, suggesting a potential upside of 9.91%. Given Franco-Nevada’s higher possible upside, analysts clearly believe Franco-Nevada is more favorable than Friedman Industries.

Insider and Institutional Ownership

33.3% of Friedman Industries shares are owned by institutional investors. Comparatively, 77.1% of Franco-Nevada shares are owned by institutional investors. 6.6% of Friedman Industries shares are owned by company insiders. Comparatively, 0.7% of Franco-Nevada shares are owned by company insiders. Strong institutional ownership is an indication that endowments, large money managers and hedge funds believe a company will outperform the market over the long term.

Dividends

Friedman Industries pays an annual dividend of $0.16 per share and has a dividend yield of 0.4%. Franco-Nevada pays an annual dividend of $1.76 per share and has a dividend yield of 0.7%. Friedman Industries pays out 4.2% of its earnings in the form of a dividend. Franco-Nevada pays out 23.0% 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. Friedman Industries has increased its dividend for 1 consecutive years and Franco-Nevada has increased its dividend for 18 consecutive years. Franco-Nevada is clearly the better dividend stock, given its higher yield and longer track record of dividend growth.

Valuation and Earnings

This table compares Friedman Industries and Franco-Nevada”s revenue, earnings per share and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
Friedman Industries	$752.11 million	0.40	$19.53 million	$3.84	10.95
Franco-Nevada	$1.82 billion	25.78	$1.11 billion	$7.65	31.85

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

Profitability

This table compares Friedman Industries and Franco-Nevada’s net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
Friedman Industries	3.63%	18.29%	8.19%
Franco-Nevada	63.79%	18.58%	17.19%

Summary

Franco-Nevada beats Friedman Industries on 13 of the 17 factors compared between the two stocks.

About Friedman Industries

Friedman Industries, Incorporated engages in steel processing, pipe manufacturing and processing, and the steel and pipe distribution businesses the United States. It operates in two segments, Coil and Tubular. The Coil segment is involved in the conversion of steel coils into flat sheet and plate steel cut to customer specifications and reselling steel coils. This segment also processes customer-owned coils on a fee basis. The company sells coil products and processing services to approximately 200 customers located primarily in the midwestern, southwestern and southeastern regions of the United States. Its principal customers for these products and services are steel distributors and customers manufacturing steel products, such as steel buildings, railroad cars, barges, tanks and containers, trailers, component parts and other fabricated steel products. The Tubular segment manufactures line and oil country pipes, as well as pipes for structural applications. This segment sells its tubular products principally to steel and pipe distributors through its own sales force. The company was incorporated in 1965 and is headquartered in Longview, Texas.

About Franco-Nevada

Franco-Nevada Corporation operates as a gold-focused royalty and streaming company in South America, Central America, Mexico, the United States, Canada, and internationally. It operates through Mining and Energy segments. The company manages its portfolio with a focus on precious metals, such as gold, silver, and platinum group metals; and engages in the sale of crude oil, natural gas, and natural gas liquids through a third-party marketing agent. Franco-Nevada Corporation was founded in 1986 and is headquartered in Toronto, Canada.