Finance

Critical Comparison: CenturyLink, Inc. (CTL) vs. Kimco Realty Corporation (KIM)

CenturyLink, Inc. (NYSE:CTL) shares are up more than 6.29% this year and recently increased 0.68% or $0.12 to settle at $17.73. Kimco Realty Corporation (NYSE:KIM), on the other hand, is down -26.39% year to date as of 04/23/2018. It currently trades at $13.36 and has returned -4.23% during the past week.

CenturyLink, Inc. (NYSE:CTL) and Kimco Realty Corporation (NYSE:KIM) 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, KIM is expected to grow at a 4.60% annual rate. All else equal, KIM’s higher growth rate would imply a greater potential for capital appreciation.

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 58.22% for Kimco Realty Corporation (KIM). CTL’s ROI is 2.90% while KIM has a ROI of 3.10%. The interpretation is that KIM’s business generates a higher return on investment than CTL’s.

Cash Flow



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, KIM’s free cash flow per share was -0.27. On a percent-of-sales basis, CTL’s free cash flow was -0.91% while KIM converted -9.57% 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

CTL’s debt-to-equity ratio is 1.61 versus a D/E of 1.02 for KIM. CTL is therefore the more solvent of the two companies, and has lower financial risk.

Valuation

CTL trades at a forward P/E of 16.85, a P/B of 0.67, and a P/S of 1.08, compared to a forward P/E of 21.04, a P/B of 1.05, and a P/S of 4.95 for KIM. 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

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 -10.18% to its one-year price target of 19.74. Comparatively, KIM is -21.87% relative to its price target of 17.10. This suggests that KIM 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 0.79 and KIM’s beta is 0.46. KIM’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. CTL has a short ratio of 8.43 compared to a short interest of 2.48 for KIM. This implies that the market is currently less bearish on the outlook for KIM.

Summary




Kimco Realty Corporation (NYSE:KIM) beats CenturyLink, Inc. (NYSE:CTL) on a total of 7 of the 14 factors compared between the two stocks. KIM has higher cash flow per share, is more profitable, generates a higher return on investment 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, KIM is more undervalued relative to its price target. Finally, KIM has better sentiment signals based on short interest.

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