Critical Comparison: Tronox (NYSE:TROX) vs. Koppers (NYSE:KOP)

Koppers (NYSE:KOP) and Tronox (NYSE:TROX) are both small-cap basic materials companies, but which is the better investment? We will compare the two companies based on the strength of their earnings, valuation, institutional ownership, risk, profitability, analyst recommendations and dividends.

Volatility and Risk

Koppers has a beta of 1.25, meaning that its stock price is 25% more volatile than the S&P 500. Comparatively, Tronox has a beta of 0.8, meaning that its stock price is 20% less volatile than the S&P 500.

Analyst Recommendations

This is a summary of current ratings and price targets for Koppers and Tronox, as provided by MarketBeat.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
Koppers	0	2	2	1	2.80
Tronox	3	6	2	0	1.91

Koppers presently has a consensus price target of $52.50, indicating a potential upside of 4.67%. Tronox has a consensus price target of $6.79, indicating a potential upside of 9.01%. Given Tronox’s higher possible upside, analysts clearly believe Tronox is more favorable than Koppers.

Institutional & Insider Ownership

92.7% of Koppers shares are held by institutional investors. Comparatively, 73.4% of Tronox shares are held by institutional investors. 7.3% of Koppers shares are held by insiders. Comparatively, 2.0% of Tronox shares are held by insiders. Strong institutional ownership is an indication that endowments, hedge funds and large money managers believe a company will outperform the market over the long term.

Dividends

Koppers pays an annual dividend of $0.36 per share and has a dividend yield of 0.7%. Tronox pays an annual dividend of $0.20 per share and has a dividend yield of 3.2%. Koppers pays out 9.5% of its earnings in the form of a dividend. Tronox pays out -6.8% 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. Koppers has increased its dividend for 2 consecutive years. Tronox is clearly the better dividend stock, given its higher yield and lower payout ratio.

Earnings and Valuation

This table compares Koppers and Tronox”s revenue, earnings per share (EPS) and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
Koppers	$1.88 billion	0.51	$56.00 million	$3.80	13.20
Tronox	$2.92 billion	0.34	-$470.00 million	($2.92)	-2.13

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

Profitability

This table compares Koppers and Tronox’s net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
Koppers	4.10%	14.53%	4.20%
Tronox	-15.82%	-19.93%	-4.86%

Summary

Koppers beats Tronox on 13 of the 17 factors compared between the two stocks.

About Koppers

Koppers Holdings Inc. provides treated wood products, wood preservation chemicals, and carbon compounds in the United States, Australasia, Europe, and internationally. The company operates through Railroad and Utility Products and Services (RUPS), Performance Chemicals (PC), and Carbon Materials and Chemicals (CMC) segments. The RUPS segment procures and treats crossties, switch ties, and various types of lumber used for railroad bridges and crossings. It also provides rail joint bars to join rails together for railroads; transmission and distribution poles for electric and telephone utilities; and pilings. This segment provides railroad services, such as engineering, design, repair, and inspection services for railroad bridges. The PC segment develops, manufactures, and markets copper-based wood preservatives, including micronized copper azole, micronized pigments, alkaline copper quaternary, amine copper azole, and chromated copper arsenate for decking, fencing, utility poles, construction lumber and timbers, and various agricultural uses; and supplies fire-retardant chemicals for pressure treatment of wood primarily in commercial construction. The CMC segment manufactures creosote for the treatment of wood or as a feedstock in the production of carbon black; carbon pitch, a raw material used in the production of aluminum and steel; naphthalene for use as a feedstock in the production of phthalic anhydride and as a surfactant in the production of concrete; phthalic anhydride for the production of plasticizers, polyester resins, and alkyd paints; and carbon black feedstock for use in the production of carbon black. It serves the railroad, specialty chemical, utility, residential lumber, agriculture, aluminum, steel, rubber, and construction sectors. Koppers Holdings Inc. was founded in 1988 and is based in Pittsburgh, Pennsylvania.

About Tronox

Tronox Holdings plc operates as a vertically integrated manufacturer of TiO2 pigment in North America, South and Central America, Europe, the Middle East, Africa, and the Asia Pacific. The company operates titanium-bearing mineral sand mines; and engages in beneficiation and smelting operations. It offers TiO2 pigment; ultrafine specialty TiO2; zircon; feedstock; pig iron; monazite; titanium tetrachloride; and other products. The company’s products are used for the manufacture of paints, coatings, plastics, and paper, as well as various other applications. Tronox Holdings plc is based in Stamford, Connecticut.