Stepan (NYSE: SCL) and Cabot Corporation (NYSE:CBT) are both basic materials companies, but which is the better stock? We will compare the two businesses based on the strength of their profitabiliy, dividends, risk, institutional ownership, valuation, earnings and analyst recommendations.

Analyst Ratings

This is a breakdown of current recommendations for Stepan and Cabot Corporation, as reported by MarketBeat.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Stepan 0 3 1 1 2.60
Cabot Corporation 0 2 3 0 2.60

Stepan currently has a consensus target price of $44.20, indicating a potential downside of 44.03%. Cabot Corporation has a consensus target price of $59.60, indicating a potential upside of 15.86%. Given Cabot Corporation’s higher probable upside, analysts plainly believe Cabot Corporation is more favorable than Stepan.

Risk & Volatility

Stepan has a beta of 1.26, indicating that its share price is 26% more volatile than the S&P 500. Comparatively, Cabot Corporation has a beta of 1.05, indicating that its share price is 5% more volatile than the S&P 500.

Dividends

Stepan pays an annual dividend of $0.82 per share and has a dividend yield of 1.0%. Cabot Corporation pays an annual dividend of $1.26 per share and has a dividend yield of 2.4%. Stepan pays out 21.5% of its earnings in the form of a dividend. Cabot Corporation pays out 35.3% 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. Stepan has increased its dividend for 5 consecutive years and Cabot Corporation has increased its dividend for 49 consecutive years. Cabot Corporation is clearly the better dividend stock, given its higher yield and longer track record of dividend growth.

Insider & Institutional Ownership

62.0% of Stepan shares are owned by institutional investors. Comparatively, 85.7% of Cabot Corporation shares are owned by institutional investors. 13.1% of Stepan shares are owned by company insiders. Comparatively, 2.5% of Cabot Corporation shares are owned by company insiders. Strong institutional ownership is an indication that hedge funds, endowments and large money managers believe a stock is poised for long-term growth.

Profitability

This table compares Stepan and Cabot Corporation’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Stepan 4.85% 14.95% 7.28%
Cabot Corporation 8.61% 16.03% 7.24%

Earnings and Valuation

This table compares Stepan and Cabot Corporation’s revenue, earnings per share and valuation.

Gross Revenue Price/Sales Ratio EBITDA Earnings Per Share Price/Earnings Ratio
Stepan $1.83 billion 0.97 $207.56 million $3.81 20.73
Cabot Corporation $2.61 billion 1.23 $488.00 million $3.57 14.41

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

Summary

Cabot Corporation beats Stepan on 10 of the 17 factors compared between the two stocks.

About Stepan

Stepan Company produces specialty and intermediate chemicals, which are sold to other manufacturers and used in a range of end products. The Company operates through three segments: Surfactants, Polymers and Specialty Products. The Company’s principal markets include manufacturers of cleaning and washing compounds (including detergents, shampoos, fabric softeners, toothpastes and household cleaners), paints, cosmetics, food, beverages, nutritional supplements, agricultural products and plastics. Its Surfactants segment offers products, which are principal ingredients in consumer and industrial cleaning products, such as detergents for washing clothes, dishes, carpets, floors and walls, as well as shampoos and body washes. Its Polymers segment includes polyurethane polyols, polyester resins and phthalic anhydride. Its Specialty Products segment includes flavors, emulsifiers and solubilizers used in food, flavoring, nutritional supplement and pharmaceutical applications.

About Cabot Corporation

Cabot Corporation is a global specialty chemicals and performance materials company. The Company operates through four business segments: reinforcement materials, performance chemicals, purification solutions and specialty fluids. Reinforcement materials’ rubber grade carbon blacks are used to enhance the physical properties of the systems and applications in which they are incorporated. Its rubber blacks products are used in tires and industrial products. Performance Chemicals consists of two businesses: specialty carbons and formulations business, and metal oxides business. Purification Solutions’ activated carbon products are used for the purification of water, air and pharmaceuticals, among others, as either a colorant or a decolorizing agent in the production of food and beverage applications. Its specialty fluids segment produces and markets cesium formate as a drilling and completion fluid for use in high pressure and high temperature oil and gas well construction.

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