R.R. Donnelley & Sons (NYSE: RRD) and LSC Communications (NYSE:LKSD) are both small-cap business services companies, but which is the better business? We will compare the two businesses based on the strength of their earnings, profitability, dividends, analyst recommendations, risk, valuation and institutional ownership.

Dividends

R.R. Donnelley & Sons pays an annual dividend of $0.56 per share and has a dividend yield of 6.2%. LSC Communications pays an annual dividend of $1.00 per share and has a dividend yield of 6.2%. R.R. Donnelley & Sons pays out -7.9% of its earnings in the form of a dividend. LSC Communications pays out 344.8% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. R.R. Donnelley & Sons is clearly the better dividend stock, given its higher yield and lower payout ratio.

Risk and Volatility

R.R. Donnelley & Sons has a beta of 1.99, meaning that its stock price is 99% more volatile than the S&P 500. Comparatively, LSC Communications has a beta of 6.07, meaning that its stock price is 507% more volatile than the S&P 500.

Earnings and Valuation

This table compares R.R. Donnelley & Sons and LSC Communications’ gross revenue, earnings per share and valuation.

Gross Revenue Price/Sales Ratio Net Income Earnings Per Share Price/Earnings Ratio
R.R. Donnelley & Sons $6.90 billion 0.09 -$495.90 million ($7.07) -1.28
LSC Communications $3.65 billion 0.15 $106.00 million $0.29 55.62

LSC Communications has lower revenue, but higher earnings than R.R. Donnelley & Sons. R.R. Donnelley & Sons is trading at a lower price-to-earnings ratio than LSC Communications, indicating that it is currently the more affordable of the two stocks.

Profitability

This table compares R.R. Donnelley & Sons and LSC Communications’ net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
R.R. Donnelley & Sons -7.15% -42.52% 1.57%
LSC Communications 0.28% 24.72% 3.35%

Analyst Ratings

This is a breakdown of current ratings and recommmendations for R.R. Donnelley & Sons and LSC Communications, as reported by MarketBeat.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
R.R. Donnelley & Sons 0 0 0 0 N/A
LSC Communications 0 4 0 0 2.00

LSC Communications has a consensus target price of $24.00, indicating a potential upside of 48.79%. Given LSC Communications’ higher possible upside, analysts clearly believe LSC Communications is more favorable than R.R. Donnelley & Sons.

Insider & Institutional Ownership

85.9% of R.R. Donnelley & Sons shares are owned by institutional investors. Comparatively, 84.6% of LSC Communications shares are owned by institutional investors. 2.3% of R.R. Donnelley & Sons shares are owned by company insiders. Comparatively, 2.5% of LSC Communications shares are owned by company insiders. Strong institutional ownership is an indication that large money managers, endowments and hedge funds believe a stock is poised for long-term growth.

Summary

LSC Communications beats R.R. Donnelley & Sons on 9 of the 14 factors compared between the two stocks.

About R.R. Donnelley & Sons

R.R. Donnelley & Sons Company helps organizations communicate by working to create, manage, produce, distribute and process content on behalf of its customers. The Company’s segments include Variable Print, Strategic Services, International and Corporate. The Variable Print segment includes the Company’s United States short-run and transactional printing operations. The Variable Print segment’s primary product offerings include commercial and digital print, direct mail, labels, statement printing, forms and packaging. The Strategic Services segment includes the Company’s logistics services, print management offerings and digital and creative solutions. The International segment includes the Company’s non-United States printing operations in Asia, Latin America and Canada. The International segment’s primary product and service offerings include magazines, catalogs, retail inserts, books, directories, direct mail, logistics services and digital and creative solutions.

About LSC Communications

LSC Communications, Inc. focuses on traditional and digital print, print-related services and office products. The Company’s segments are Print and Office Products. The Company, through its Print segment, provides a range of print product offerings, which include magazines, catalogs, retail inserts, books and directories. In addition to printed products, the Company also provides a number of print-related services, such as supply chain management, mail services, e-book formatting and distribution services. Its Print segment services over 3,000 customers, including publishers of magazines, books and directories, online retailers, catalogers, mass merchandisers and contract stationers. In its Office Products segment, the Company manufactures and sells a range of branded and private label products, primarily within the core categories, including filing products; note-taking products; binder products; tax and stock forms, and envelopes.

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