Global

Critical Comparison: CenturyLink, Inc. (CTL) vs. BlackBerry Limited (BB)

CenturyLink, Inc. (NYSE:CTL) shares are up more than 16.13% this year and recently increased 0.68% or $0.13 to settle at $19.37. BlackBerry Limited (NYSE:BB), on the other hand, is up 4.74% year to date as of 05/15/2018. It currently trades at $11.70 and has returned 5.22% during the past week.

CenturyLink, Inc. (NYSE:CTL) and BlackBerry Limited (NYSE:BB) 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

One of the key things investors look for in a company is the ability to grow earnings at a high compound rate over time. Analysts expect CTL to grow earnings at a -12.58% annual rate over the next 5 years. Comparatively, BB is expected to grow at a -13.67% annual rate. All else equal, CTL’s higher growth rate would imply a greater potential for capital appreciation.

Profitability and Returns

Growth isn’t very attractive to investors if companies are sacrificing profitability and shareholder returns to achieve that growth. We will use EBITDA margin and Return on Investment (ROI), which control for differences in capital structure between the two companies, to measure profitability and return., compared to an EBITDA margin of 62.55% for BlackBerry Limited (BB). CTL’s ROI is 2.90% while BB has a ROI of 10.60%. The interpretation is that BB’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 +0.26. Comparatively, BB’s free cash flow per share was -0.41. On a percent-of-sales basis, CTL’s free cash flow was 1.59% while BB converted -0.02% 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

Balance sheet risk is one of the biggest factors to consider before investing. CTL has a current ratio of 0.90 compared to 5.50 for BB. This means that BB can more easily cover its most immediate liabilities over the next twelve months. CTL’s debt-to-equity ratio is 1.59 versus a D/E of 0.00 for BB. CTL is therefore the more solvent of the two companies, and has lower financial risk.

Valuation

CTL trades at a forward P/E of 18.15, a P/B of 0.88, and a P/S of 0.99, compared to a forward P/E of 78.52, a P/B of 2.51, and a P/S of 6.73 for BB. 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 -1.87% to its one-year price target of 19.74. Comparatively, BB is 0.17% relative to its price target of 11.68. This suggests that CTL is the better investment over the next year.

Risk and Volatility

Analyst use beta to measure a stock’s volatility relative to the overall market. Stocks with a beta above 1 tend to have bigger swings in price than the market as a whole, the opposite being the case for stocks with a beta below 1. CTL has a beta of 0.80 and BB’s beta is 1.19. CTL’s shares are therefore the less volatile of the two stocks.

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 9.50 compared to a short interest of 9.11 for BB. This implies that the market is currently less bearish on the outlook for BB.

Summary

CenturyLink, Inc. (NYSE:CTL) beats BlackBerry Limited (NYSE:BB) on a total of 9 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, CTL is more undervalued relative to its price target. Finally, SYF has better sentiment signals based on short interest.

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