Reviewing Alcoa (NYSE:AA) and Franco-Nevada (NYSE:FNV)

Franco-Nevada (NYSE:FNV) and Alcoa (NYSE:AA) are both large-cap materials companies, but which is the better investment? We will contrast the two companies based on the strength of their valuation, earnings, risk, profitability, analyst recommendations, institutional ownership and dividends.

Institutional & Insider Ownership

77.1% of Franco-Nevada shares are held by institutional investors. Comparatively, 82.4% of Alcoa shares are held by institutional investors. 0.7% of Franco-Nevada shares are held by insiders. Comparatively, 0.4% of Alcoa shares are held by insiders. Strong institutional ownership is an indication that large money managers, endowments and hedge funds believe a company will outperform the market over the long term.

Dividends

Franco-Nevada pays an annual dividend of $1.76 per share and has a dividend yield of 0.7%. Alcoa pays an annual dividend of $0.40 per share and has a dividend yield of 0.9%. Franco-Nevada pays out 23.0% of its earnings in the form of a dividend. Alcoa pays out 8.2% 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. Franco-Nevada has increased its dividend for 18 consecutive years. Alcoa is clearly the better dividend stock, given its higher yield and lower payout ratio.

Risk and Volatility

Franco-Nevada has a beta of 0.36, meaning that its share price is 64% less volatile than the S&P 500. Comparatively, Alcoa has a beta of 1.74, meaning that its share price is 74% more volatile than the S&P 500.

Earnings & Valuation

This table compares Franco-Nevada and Alcoa”s gross revenue, earnings per share (EPS) and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
Franco-Nevada	$2.32 billion	19.81	$1.11 billion	$7.65	31.10
Alcoa	$13.60 billion	0.82	$1.16 billion	$4.86	8.74

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

Profitability

This table compares Franco-Nevada and Alcoa’s net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
Franco-Nevada	63.79%	18.58%	17.19%
Alcoa	9.48%	18.90%	7.71%

Analyst Ratings

This is a breakdown of recent ratings and target prices for Franco-Nevada and Alcoa, as reported by MarketBeat.com.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
Franco-Nevada	0	4	11	0	2.73
Alcoa	1	5	7	0	2.46

Franco-Nevada presently has a consensus price target of $274.90, suggesting a potential upside of 15.56%. Alcoa has a consensus price target of $61.00, suggesting a potential upside of 43.61%. Given Alcoa’s higher probable upside, analysts clearly believe Alcoa is more favorable than Franco-Nevada.

Summary

Franco-Nevada beats Alcoa on 9 of the 17 factors compared between the two stocks.

About Franco-Nevada

Franco-Nevada Corporation operates as a gold-focused royalty and streaming company in South America, Central America, Mexico, the United States, Canada, and internationally. It operates through Mining and Energy segments. The company manages its portfolio with a focus on precious metals, such as gold, silver, and platinum group metals; and engages in the sale of crude oil, natural gas, and natural gas liquids through a third-party marketing agent. Franco-Nevada Corporation was founded in 1986 and is headquartered in Toronto, Canada.

About Alcoa

Alcoa Corporation, together with its subsidiaries, produces and sells bauxite, alumina, and aluminum products in the United States, Spain, Australia, Iceland, Norway, Brazil, Canada, and internationally. The company operates through two segments, Alumina and Aluminum. It engages in bauxite mining operations; and processes bauxite into alumina and sells it to customers who process it into industrial chemical products, as well as aluminum smelting and casting businesses. The company offers primary aluminum in the form of alloy ingot or value-add ingot to customers that produce products for the transportation, building and construction, packaging, wire, and other industrial markets; and flat-rolled aluminum in the form of sheet, which is sold primarily to customers that produce beverage and food cans. In addition, it owns hydro power plants that generates and sells electricity in the wholesale market to traders, large industrial consumers, distribution companies, and other generation companies. The company was formerly known as Alcoa Upstream Corporation and changed its name to Alcoa Corporation in October 2016. The company was founded in 1886 and is headquartered in Pittsburgh, Pennsylvania.