Critical Review: Stora Enso OYJ (SEOAY) versus Domtar (UFS)

Stora Enso OYJ (OTCMKTS: SEOAY) and Domtar (NYSE:UFS) are both basic materials companies, but which is the better business? We will contrast the two businesses based on the strength of their profitability, dividends, institutional ownership, earnings, valuation, risk and analyst recommendations.

Dividends

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Stora Enso OYJ pays an annual dividend of $0.32 per share and has a dividend yield of 1.7%. Domtar pays an annual dividend of $1.66 per share and has a dividend yield of 4.0%. Stora Enso OYJ pays out 35.6% of its earnings in the form of a dividend. Domtar pays out -49.1% 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. Stora Enso OYJ has increased its dividend for 8 consecutive years. Domtar is clearly the better dividend stock, given its higher yield and lower payout ratio.

Profitability

This table compares Stora Enso OYJ and Domtar’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Stora Enso OYJ 6.26% 12.35% 6.10%
Domtar -4.11% 6.02% 2.93%

Analyst Recommendations

This is a breakdown of current ratings and target prices for Stora Enso OYJ and Domtar, as provided by MarketBeat.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Stora Enso OYJ 0 0 0 0 N/A
Domtar 3 7 5 0 2.13

Domtar has a consensus target price of $43.27, indicating a potential upside of 3.23%. Given Domtar’s higher possible upside, analysts plainly believe Domtar is more favorable than Stora Enso OYJ.

Insider & Institutional Ownership

0.1% of Stora Enso OYJ shares are owned by institutional investors. Comparatively, 94.5% of Domtar shares are owned by institutional investors. 8.1% of Stora Enso OYJ shares are owned by insiders. Comparatively, 1.0% of Domtar shares are owned by insiders. Strong institutional ownership is an indication that hedge funds, endowments and large money managers believe a company is poised for long-term growth.

Earnings & Valuation

This table compares Stora Enso OYJ and Domtar’s top-line revenue, earnings per share and valuation.

Gross Revenue Price/Sales Ratio Net Income Earnings Per Share Price/Earnings Ratio
Stora Enso OYJ $11.35 billion 1.27 $693.59 million $0.90 20.35
Domtar $5.16 billion 0.51 -$258.00 million ($3.38) -12.40

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

Risk and Volatility

Stora Enso OYJ has a beta of 1.34, meaning that its stock price is 34% more volatile than the S&P 500. Comparatively, Domtar has a beta of 1.63, meaning that its stock price is 63% more volatile than the S&P 500.

Summary

Stora Enso OYJ beats Domtar on 10 of the 16 factors compared between the two stocks.

About Stora Enso OYJ

Stora Enso Oyj is a provider of renewable solutions in packaging, biomaterials, wooden constructions and paper on global markets. The Company’s segments include Consumer Board, Packaging Solutions, Biomaterials, Wood Products, Paper and Other. The Consumer Board segment develops and provides consumer packaging boards for printing and packaging applications. The Packaging Solutions segment develops fiber-based packaging, and operates at every stage of the value chain from pulp production, material and packaging production to recycling. The Biomaterials segment offers pulp grades for paper, board, tissue, textile and hygiene product producers. The Wood Products segment provides wood-based solutions for building and housing. The Paper segment provides paper solutions for print media and office use. The Other segment includes the Nordic forest equity accounted investments. It serves publishers, retailers, printing houses, merchants, converters and joinery, and construction companies.

About Domtar

Domtar Corporation designs, manufactures, markets and distributes a range of fiber-based products, including communication papers, specialty and packaging papers and absorbent hygiene products. The Company segments include Pulp and Paper and Personal Care. The Pulp and Paper segment consists of the design, manufacturing, marketing and distribution of communication, specialty and packaging papers, as well as softwood, fluff and hardwood market pulp. The Personal Care segment consists of the design, manufacturing, marketing and distribution of absorbent hygiene products. The Company is a marketer of uncoated freesheet paper in North America serving a range of customers, including merchants, retail outlets, stationers, printers, publishers, converters and end users. It is also a marketer and producer of a line of incontinence care products, as well as infant diapers. It has a network of wood fiber converting assets that produce paper grade, fluff and specialty pulp.

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