CenturyLink, Inc. (NYSE:CTL) shares are up more than 2.70% this year and recently increased 0.94% or $0.16 to settle at $17.13. Park Hotels & Resorts Inc. (NYSE:PK), on the other hand, is down -5.01% year to date as of 03/16/2018. It currently trades at $27.31 and has returned 1.15% during the past week.
CenturyLink, Inc. (NYSE:CTL) and Park Hotels & Resorts Inc. (NYSE:PK) are the two most active stocks in the market based on today’s trading volumes. We will compare the two companies based on the strength of various metrics, including growth, profitability, risk, return, and valuation to determine if one is a better investment than the other.
Companies that can increase earnings at a high compound rate over time are attractive to investors. Analysts expect CTL to grow earnings at a -12.70% annual rate over the next 5 years. Comparatively, PK is expected to grow at a 2.08% annual rate. All else equal, PK’s higher growth rate would imply a greater potential for capital appreciation.
Profitability and Returns
Growth in and of itself is not necessarily valuable, and it can even be harmful to shareholders if companies overinvest in unprofitable projects in pursuit of that growth. We will use EBITDA margin and Return on Investment (ROI), which adjust for differences in capital structure, as measure of profitability and return. , compared to an EBITDA margin of 25.15% for Park Hotels & Resorts Inc. (PK). CTL’s ROI is 2.90% while PK has a ROI of 3.80%. The interpretation is that PK’s business generates a higher return on investment than CTL’s.
The value of a stock is simply the present value of its future free cash flows. CTL’s free cash flow (“FCF”) per share for the trailing twelve months was -0.15. Comparatively, PK’s free cash flow per share was +0.28. On a percent-of-sales basis, CTL’s free cash flow was -0.91% while PK converted 2.16% of its revenues into cash flow. This means that, for a given level of sales, PK is able to generate more free cash flow for investors.
Liquidity and Financial Risk
CTL’s debt-to-equity ratio is 1.61 versus a D/E of 0.49 for PK. CTL is therefore the more solvent of the two companies, and has lower financial risk.
CTL trades at a forward P/E of 14.24, a P/B of 0.65, and a P/S of 1.03, compared to a forward P/E of 21.99, a P/B of 0.97, and a P/S of 2.08 for PK. CTL is the cheaper of the two stocks on an earnings, book value and sales basis. Given that earnings are what matter most to investors, analysts tend to place a greater weight on the P/E.
Analyst Price Targets and Opinions
When investing it’s crucial to distinguish between price and value. As Warren Buffet said, “price is what you pay, value is what you get”. CTL is currently priced at a -12.96% to its one-year price target of 19.68. Comparatively, PK is -4.44% relative to its price target of 28.58. This suggests that CTL is the better investment over the next year.
The average investment recommendation on a scale of 1 to 5 (1 being a strong buy, 3 a hold, and 5 a sell) is 2.60 for CTL and 2.60 for PK, which implies that analysts are equally bullish on their outlook for the two stocks.
Insider Activity and Investor Sentiment
Short interest is another tool that analysts use to gauge investor sentiment. It represents the percentage of a stock’s tradable shares that are being shorted. CTL has a short ratio of 5.98 compared to a short interest of 1.40 for PK. This implies that the market is currently less bearish on the outlook for PK.
Park Hotels & Resorts Inc. (NYSE:PK) beats CenturyLink, Inc. (NYSE:CTL) on a total of 7 of the 14 factors compared between the two stocks. PK is more profitable, generates a higher return on investment, has higher cash flow per share, has a higher cash conversion rate and has lower financial risk. In terms of valuation, CTL is the cheaper of the two stocks on an earnings, book value and sales basis, Finally, PK has better sentiment signals based on short interest.