Finance

Critical Comparison: CenturyLink, Inc. (CTL) vs. Exelon Corporation (EXC)

CenturyLink, Inc. (NYSE:CTL) shares are up more than 3.84% this year and recently decreased -1.31% or -$0.23 to settle at $17.32. Exelon Corporation (NYSE:EXC), on the other hand, is down -1.14% year to date as of 04/19/2018. It currently trades at $38.96 and has returned 3.18% during the past week.

CenturyLink, Inc. (NYSE:CTL) and Exelon Corporation (NYSE:EXC) are the two most active stocks in the Telecom Services – Domestic industry 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.

Growth

The ability to grow earnings at a compound rate over time is a crucial determinant of investment value. Analysts expect CTL to grow earnings at a -12.12% annual rate over the next 5 years. Comparatively, EXC is expected to grow at a 3.19% annual rate. All else equal, EXC’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 32.04% for Exelon Corporation (EXC). CTL’s ROI is 2.90% while EXC has a ROI of 6.30%. The interpretation is that EXC’s business generates a higher return on investment than CTL’s.

Cash Flow



Earnings don’t always accurately reflect the amount of cash that a company brings in. CTL’s free cash flow (“FCF”) per share for the trailing twelve months was -0.15. Comparatively, EXC’s free cash flow per share was -0.56. On a percent-of-sales basis, CTL’s free cash flow was -0.91% while EXC converted -1.61% 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

Liquidity and leverage ratios measure a company’s ability to meet short-term obligations and longer-term debts. CTL has a current ratio of 0.90 compared to 1.10 for EXC. This means that EXC 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 1.19 for EXC. CTL is therefore the more solvent of the two companies, and has lower financial risk.

Valuation

CTL trades at a forward P/E of 16.11, a P/B of 0.65, and a P/S of 1.06, compared to a forward P/E of 12.85, a P/B of 1.26, and a P/S of 1.12 for EXC. 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

Investors often compare a stock’s current price to an analyst price target to get a sense of the potential upside within the next year. CTL is currently priced at a -12.26% to its one-year price target of 19.74. Comparatively, EXC is -7.5% relative to its price target of 42.12. This suggests that CTL is the better investment over the next year.

Risk and Volatility

No discussion on value is complete without taking into account risk. Analysts use a stock’s beta, which measures the volatility of a stock compared to the overall market, to measure systematic risk. A stock with a beta above 1 is more volatile than the market. Conversely, a beta below 1 implies a below average level of risk. CTL has a beta of 0.78 and EXC’s beta is 0.14. EXC’s shares are therefore the less volatile of the two stocks.

Insider Activity and Investor Sentiment




The analysis of insider buying and selling trends can be extended to the aggregate level. Short interest, which represents the percentage of a stock’s tradable shares currently being shorted, captures what the market as a whole feels about a stock. CTL has a short ratio of 8.27 compared to a short interest of 2.93 for EXC. This implies that the market is currently less bearish on the outlook for EXC.

Summary

Exelon Corporation (NYSE:EXC) beats CenturyLink, Inc. (NYSE:CTL) on a total of 8 of the 14 factors compared between the two stocks. EXC is more profitable, generates a higher return on investment, higher liquidity and has lower financial risk. Finally, EXC has better sentiment signals based on short interest.

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