CenturyLink, Inc. (NYSE:CTL) shares are up more than 4.50% this year and recently decreased -1.19% or -$0.21 to settle at $17.43. Alliant Energy Corporation (NYSE:LNT), on the other hand, is down -6.71% year to date as of 06/05/2018. It currently trades at $39.75 and has returned -3.05% during the past week.
CenturyLink, Inc. (NYSE:CTL) and Alliant Energy Corporation (NYSE:LNT) 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 consistently grow earnings at a high compound rate is a defining characteristic of the best companies for long-term investment. Analysts expect CTL to grow earnings at a -14.31% annual rate over the next 5 years. Comparatively, LNT is expected to grow at a 5.85% annual rate. All else equal, LNT’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 22.54% for Alliant Energy Corporation (LNT). CTL’s ROI is 2.90% while LNT has a ROI of 6.20%. The interpretation is that LNT’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 +0.26. Comparatively, LNT’s free cash flow per share was -1.49. On a percent-of-sales basis, CTL’s free cash flow was 1.59% while LNT converted -10.19% 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 0.40 for LNT. This means that CTL 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 1.26 for LNT. CTL is therefore the more solvent of the two companies, and has lower financial risk.Valuation
CTL trades at a forward P/E of 16.65, a P/B of 0.79, and a P/S of 1.00, compared to a forward P/E of 17.67, a P/B of 2.17, and a P/S of 2.72 for LNT. 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
A cheap stock is not necessarily a value stock. Most of the time, a stock is cheap for good reason. A stock only has value if the current price is substantially below the price at which it should trade in the future. CTL is currently priced at a -12.37% to its one-year price target of 19.89. Comparatively, LNT is -4.97% relative to its price target of 41.83. This suggests that CTL is the better investment over the next year.
Risk and Volatility
Beta is an important measure that gives investors a sense of the market risk associated with a particular stock. A beta above 1 signals above average market risk, while a beta below 1 implies below average volatility. CTL has a beta of 0.78 and LNT’s beta is 0.30. LNT’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 9.00 compared to a short interest of 4.07 for LNT. This implies that the market is currently less bearish on the outlook for LNT.Summary
CenturyLink, Inc. (NYSE:CTL) beats Alliant Energy Corporation (NYSE:LNT) on a total of 8 of the 14 factors compared between the two stocks. CTL is more profitable, has higher cash flow per share, has a higher cash conversion rate and higher liquidity. 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, FRC has better sentiment signals based on short interest.