CenturyLink, Inc. (NYSE:CTL) shares are up more than 20.56% this year and recently increased 1.11% or $0.22 to settle at $20.11. EOG Resources, Inc. (NYSE:EOG), on the other hand, is up 17.66% year to date as of 07/10/2018. It currently trades at $126.97 and has returned 3.73% during the past week.
CenturyLink, Inc. (NYSE:CTL) and EOG Resources, Inc. (NYSE:EOG) are the two most active stocks in the Telecom Services – Domestic industry based on today’s trading volumes. To determine if one is a better investment than the other, we will compare the two companies’ growth, profitability, risk, return, and valuation characteristics, as well as their analyst ratings and sentiment signals.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 -14.31% annual rate over the next 5 years.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 38.38% for EOG Resources, Inc. (EOG). CTL’s ROI is 2.90% while EOG has a ROI of 2.90%. The interpretation is that CTL’s business generates a higher return on investment than EOG’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, EOG’s free cash flow per share was +0.02. On a percent-of-sales basis, CTL’s free cash flow was 1.59% while EOG converted 0.1% 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 1.30 for EOG. This means that EOG 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 0.38 for EOG. CTL is therefore the more solvent of the two companies, and has lower financial risk.Valuation
CTL trades at a forward P/E of 19.51, a P/B of 0.91, and a P/S of 1.09, compared to a forward P/E of 20.15, a P/B of 4.34, and a P/S of 5.85 for EOG. 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
Just because a stock is cheaper doesn’t mean there’s more value to be had. In order to assess value we need to compare the current price to where it’s likely to trade in the future. CTL is currently priced at a -0.35% to its one-year price target of 20.18. Comparatively, EOG is -5.15% relative to its price target of 133.86. This suggests that EOG 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 0.81 and EOG’s beta is 1.01. CTL’s shares are therefore the less volatile of the two stocks.Insider Activity and Investor Sentiment
Short interest is another tool that analysts use to gauge investor sentiment. It represents the percentage of a stock’s tradable shares that are being shorted. CTL has a short ratio of 10.40 compared to a short interest of 3.71 for EOG. This implies that the market is currently less bearish on the outlook for EOG.Summary
EOG Resources, Inc. (NYSE:EOG) beats CenturyLink, Inc. (NYSE:CTL) on a total of 7 of the 14 factors compared between the two stocks. EOG generates a higher return on investment, is more profitable, 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, EOG is more undervalued relative to its price target. Finally, EOG has better sentiment signals based on short interest.