Headwaters (NYSE: HW) and Cummins (NYSE:CMI) are both cyclical consumer goods & services companies, but which is the better business? We will contrast the two businesses based on the strength of their earnings, risk, dividends, institutional ownership, profitability, valuation and analyst recommendations.

Volatility and Risk

Headwaters has a beta of 1.7, meaning that its share price is 70% more volatile than the S&P 500. Comparatively, Cummins has a beta of 1.09, meaning that its share price is 9% more volatile than the S&P 500.

Profitability

This table compares Headwaters and Cummins’ net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Headwaters 1.98% 5.96% 1.68%
Cummins 8.10% 20.67% 9.91%

Insider and Institutional Ownership

86.8% of Headwaters shares are owned by institutional investors. Comparatively, 80.7% of Cummins shares are owned by institutional investors. 6.4% of Headwaters shares are owned by insiders. Comparatively, 0.6% of Cummins shares are owned by insiders. Strong institutional ownership is an indication that large money managers, endowments and hedge funds believe a stock will outperform the market over the long term.

Dividends

Cummins pays an annual dividend of $4.32 per share and has a dividend yield of 2.8%. Headwaters does not pay a dividend. Cummins pays out 48.8% of its earnings in the form of a dividend. Cummins has increased its dividend for 7 consecutive years.

Analyst Ratings

This is a summary of recent ratings and price targets for Headwaters and Cummins, as provided by MarketBeat.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Headwaters 1 6 1 0 2.00
Cummins 1 8 5 0 2.29

Headwaters currently has a consensus price target of $23.44, indicating a potential downside of 3.31%. Cummins has a consensus price target of $156.92, indicating a potential upside of 3.17%. Given Cummins’ stronger consensus rating and higher probable upside, analysts plainly believe Cummins is more favorable than Headwaters.

Earnings & Valuation

This table compares Headwaters and Cummins’ revenue, earnings per share and valuation.

Gross Revenue Price/Sales Ratio EBITDA Earnings Per Share Price/Earnings Ratio
Headwaters N/A N/A N/A $0.56 43.29
Cummins $18.36 billion 1.38 $2.35 billion $8.86 17.17

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

Summary

Cummins beats Headwaters on 10 of the 14 factors compared between the two stocks.

About Headwaters

Headwaters Incorporated is a building materials company operating in the building products and construction materials sectors. The Company sells building products, such as manufactured architectural stone, siding accessory products, roof products and concrete block. The Company’s operating segments include building products, construction materials and energy technology. It also markets coal combustion products (CCPs), including fly ash, which is used as a partial replacement for Portland cement in concrete. The Building Products segment is engaged in designing, manufacturing and marketing of siding accessories used in residential repair and remodeling, and new residential construction applications. The Materials segment markets fly ash in the construction materials sector. The Energy Technology segment is involved in heavy oil upgrading processes through the sale of its HCAT catalyst material. It sells catalytic materials to certain refineries engaged in heavy oil upgrading.

About Cummins

Cummins Inc. designs, manufactures, distributes and services diesel and natural gas engines and engine-related component products. The Company’s segments include Engine, Distribution, Components and Power Systems. The Engine segment manufactures and markets a range of diesel and natural gas powered engines under the Cummins brand name, as well as certain customer brand names, for the heavy and medium-duty truck, bus, recreational vehicle (RV), light-duty automotive and agricultural markets. The Distribution segment consists of the product lines, which service and/or distribute a range of products and services, including parts, engines, power generation and service. The Components segment supplies products, including aftertreatment systems, turbochargers, filtration products and fuel systems for commercial diesel applications. The Power Systems segment consists of businesses, including Power generation, Industrial and Generator technologies.

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