Marathon Oil Corporation (NYSE:MRO) shares are down more than -6.91% this year and recently decreased -0.51% or -$0.08 to settle at $15.76. CenturyLink, Inc. (NYSE:CTL), on the other hand, is down -6.95% year to date as of 03/23/2018. It currently trades at $15.52 and has returned -9.40% during the past week.
Marathon Oil Corporation (NYSE:MRO) and CenturyLink, Inc. (NYSE:CTL) 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 consistently grow earnings at a high compound rate usually have the greatest potential to create value for shareholders in the long-run. Comparatively, CTL is expected to grow at a -12.12% annual rate. All else equal, MRO’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 33.8% for CenturyLink, Inc. (CTL). MRO’s ROI is -3.50% while CTL has a ROI of 2.90%. The interpretation is that CTL’s business generates a higher return on investment than MRO’s.
Earnings don’t always accurately reflect the amount of cash that a company brings in. MRO’s free cash flow (“FCF”) per share for the trailing twelve months was -0.25. Comparatively, CTL’s free cash flow per share was -0.15. On a percent-of-sales basis, MRO’s free cash flow was -4.85% while CTL converted -0.91% of its revenues into cash flow. This means that, for a given level of sales, CTL is able to generate more free cash flow for investors.
Liquidity and Financial Risk
Analysts look at liquidity and leverage ratios to assess how easily a company can cover its liabilities. MRO has a current ratio of 1.30 compared to 0.90 for CTL. This means that MRO can more easily cover its most immediate liabilities over the next twelve months. MRO’s debt-to-equity ratio is 0.47 versus a D/E of 1.61 for CTL. CTL is therefore the more solvent of the two companies, and has lower financial risk.
MRO trades at a forward P/E of 28.14, a P/B of 1.14, and a P/S of 2.86, compared to a forward P/E of 13.04, a P/B of 0.59, and a P/S of 0.96 for CTL. MRO is the expensive 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
Just because a stock is cheaper doesn’t mean there’s more value to be had. In order to assess value we need to compare the current price to where it’s likely to trade in the future. MRO is currently priced at a -24.67% to its one-year price target of 20.92. Comparatively, CTL is -21.14% relative to its price target of 19.68. This suggests that MRO 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 2.30 for MRO and 2.60 for CTL, which implies that analysts are more bullish on the outlook for CTL.
Risk and Volatility
Beta is a metric that investors frequently use to analyze a stock’s systematic risk. A beta above 1 implies above average market volatility. Conversely, a stock with a beta below 1 is seen as less risky than the overall market. MRO has a beta of 2.33 and CTL’s beta is 0.82. CTL’s shares are therefore the less volatile of the two stocks.
Insider Activity and Investor Sentiment
Short interest, or the percentage of a stock’s tradable shares currently being shorted, is another metric investors use to get a pulse on sentiment.MRO has a short ratio of 1.22 compared to a short interest of 6.07 for CTL. This implies that the market is currently less bearish on the outlook for MRO.
CenturyLink, Inc. (NYSE:CTL) beats Marathon Oil Corporation (NYSE:MRO) on a total of 7 of the 14 factors compared between the two stocks. CTL is growing fastly, has higher cash flow per share and has a higher cash conversion rate. In terms of valuation, CTL is the cheaper of the two stocks on an earnings, book value and sales basis, Finally, CSCO has better sentiment signals based on short interest.