CenturyLink, Inc. (NYSE:CTL) shares are up more than 3.78% this year and recently increased 0.58% or $0.1 to settle at $17.31. Gannett Co., Inc. (NYSE:GCI), on the other hand, is down -19.84% year to date as of 04/09/2018. It currently trades at $9.29 and has returned -6.54% during the past week.
CenturyLink, Inc. (NYSE:CTL) and Gannett Co., Inc. (NYSE:GCI) are the two most active stocks in the Telecom Services – Domestic industry based on today’s trading volumes. The market is clearly enthusiastic about both these stocks, but which is the better investment? To answer this, we will compare the two companies based on the strength of their growth, profitability, risk, returns, valuation, analyst recommendations, and insider trends.Growth
Companies that can increase earnings at a high compound rate over time are attractive to investors. Analysts expect CTL to grow earnings at a -12.12% annual rate over the next 5 years.Profitability and Returns
Growth doesn’t mean much if it comes at the cost of weak profitability. To adjust for differences in capital structure we’ll use EBITDA margin and Return on Investment (ROI) as measures of profitability and return. , compared to an EBITDA margin of 7.94% for Gannett Co., Inc. (GCI). CTL’s ROI is 2.90% while GCI has a ROI of 5.60%. The interpretation is that GCI’s business generates a higher return on investment than CTL’s.Cash Flow
The amount of free cash flow available to investors is ultimately what determines the value of a stock. CTL’s free cash flow (“FCF”) per share for the trailing twelve months was -0.15. Comparatively, GCI’s free cash flow per share was +0.26. On a percent-of-sales basis, CTL’s free cash flow was -0.91% while GCI converted 0.93% of its revenues into cash flow. This means that, for a given level of sales, GCI 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. CTL has a current ratio of 0.90 compared to 1.20 for GCI. This means that GCI can more easily cover its most immediate liabilities over the next twelve months. CTL’s debt-to-equity ratio is 1.61 versus a D/E of 0.35 for GCI. CTL is therefore the more solvent of the two companies, and has lower financial risk.Valuation
CTL trades at a forward P/E of 14.79, a P/B of 0.65, and a P/S of 1.06, compared to a forward P/E of 9.13, a P/B of 1.02, and a P/S of 0.34 for GCI. CTL is the cheaper of the two stocks on book value basis but is expensive in terms of P/E and P/S ratio. 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
A cheap stock isn’t a good investment if the stock is priced accurately. To get a sense of “value” we must compare the current price to some measure of intrinsic value such as a price target. CTL is currently priced at a -12.31% to its one-year price target of 19.74. Comparatively, GCI is -19.22% relative to its price target of 11.50. This suggests that GCI is the better investment over the next year.
Insider Activity and Investor Sentiment
Comparing the number of shares sold short to the float is a method analysts often use to get a reading on investor sentiment. CTL has a short ratio of 5.93 compared to a short interest of 10.27 for GCI. This implies that the market is currently less bearish on the outlook for CTL.Summary
Gannett Co., Inc. (NYSE:GCI) beats CenturyLink, Inc. (NYSE:CTL) on a total of 10 of the 14 factors compared between the two stocks. GCI is more profitable, generates a higher return on investment, has higher cash flow per share, has a higher cash conversion rate, higher liquidity and has lower financial risk. In terms of valuation, GCI is the cheaper of the two stocks on an earnings and sales basis, GCI is more undervalued relative to its price target. Finally, TWO has better sentiment signals based on short interest.