CenturyLink, Inc. (NYSE:CTL) shares are up more than 8.03% this year and recently increased 0.06% or $0.01 to settle at $18.02. Visa Inc. (NYSE:V), on the other hand, is up 18.49% year to date as of 06/15/2018. It currently trades at $135.10 and has returned 0.27% during the past week.
CenturyLink, Inc. (NYSE:CTL) and Visa Inc. (NYSE:V) are the two most active stocks in the Telecom Services – Domestic industry based on today’s trading volumes. Investors are clearly interested in the two names, but is one a better choice than the other? We will compare the two companies across growth, profitability, risk, valuation, and insider trends to answer this question.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 -14.31% annual rate over the next 5 years. Comparatively, V is expected to grow at a 18.06% annual rate. All else equal, V’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 70.48% for Visa Inc. (V). CTL’s ROI is 2.90% while V has a ROI of 15.70%. The interpretation is that V’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 +0.26. Comparatively, V’s free cash flow per share was +0.91. On a percent-of-sales basis, CTL’s free cash flow was 1.59% while V converted 10.13% of its revenues into cash flow. This means that, for a given level of sales, V is able to generate more free cash flow for investors.Liquidity and Financial Risk
Liquidity and leverage ratios are important because they reveal the financial health of a company. CTL has a current ratio of 0.90 compared to 1.90 for V. This means that V 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 0.58 for V. CTL is therefore the more solvent of the two companies, and has lower financial risk.Valuation
CTL trades at a forward P/E of 17.29, a P/B of 0.82, and a P/S of 1.00, compared to a forward P/E of 25.71, a P/B of 10.62, and a P/S of 15.81 for V. 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 -9.4% to its one-year price target of 19.89. Comparatively, V is -6.02% relative to its price target of 143.76. This suggests that CTL is the better investment over the next year.
Risk and Volatility
To gauge the market risk of a particular stock, investors use beta. Stocks with a beta above 1 are more volatile than the market as a whole. Conversely, a beta below 1 implies below average systematic risk. CTL has a beta of 0.80 and V’s beta is 0.99. CTL’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 8.92 compared to a short interest of 3.69 for V. This implies that the market is currently less bearish on the outlook for V.Summary
Visa Inc. (NYSE:V) beats CenturyLink, Inc. (NYSE:CTL) on a total of 9 of the 14 factors compared between the two stocks. V , 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, CTL is the cheaper of the two stocks on an earnings, book value and sales basis, Finally, V has better sentiment signals based on short interest.