CenturyLink, Inc. (NYSE:CTL) shares are up more than 17.57% this year and recently decreased -1.36% or -$0.27 to settle at $19.61. AstraZeneca PLC (NYSE:AZN), on the other hand, is up 5.65% year to date as of 07/16/2018. It currently trades at $36.66 and has returned 3.68% during the past week.
CenturyLink, Inc. (NYSE:CTL) and AstraZeneca PLC (NYSE:AZN) are the two most active stocks in the Telecom Services – Domestic industry based on today’s trading volumes. Investor interest in the two stocks is clearly very high, but which is the better investment? To answer this question, we will compare the two companies across growth, profitability, risk, and valuation metrics, and also examine their analyst ratings and insider activity trends.Growth
Companies that can increase earnings at a high compound rate over time are attractive to investors. Analysts expect CTL to grow earnings at a -14.39% annual rate over the next 5 years. Comparatively, AZN is expected to grow at a 12.50% annual rate. All else equal, AZN’s higher growth rate would imply a greater potential for capital appreciation.Profitability and Returns
A high growth rate isn’t necessarily valuable to investors. In fact, companies that overinvest in low return projects just to achieve a high growth rate can actually destroy shareholder value. Profitability and returns are a measure of the quality of a company’s business and its growth opportunities. We’ll use EBITDA margin and Return on Investment (ROI) to measure this. CenturyLink, Inc. (CTL) has an EBITDA margin of 33.6%. This suggests that CTL underlying business is more profitable CTL’s ROI is 2.90% while AZN has a ROI of 13.30%. The interpretation is that AZN’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. On a percent-of-sales basis, CTL’s free cash flow was 0% while AZN converted -17.14% 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 0.70 for AZN. 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 1.54 for AZN. CTL is therefore the more solvent of the two companies, and has lower financial risk.Valuation
CTL trades at a forward P/E of 19.04, a P/B of 0.89, and a P/S of 1.09, compared to a forward P/E of 19.29, a P/B of 7.19, and a P/S of 4.17 for AZN. 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 -2.82% to its one-year price target of 20.18. Comparatively, AZN is -6.22% relative to its price target of 39.09. This suggests that AZN 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 0.84 and AZN’s beta is 0.58. AZN’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 9.78 compared to a short interest of 1.89 for AZN. This implies that the market is currently less bearish on the outlook for AZN.Summary
AstraZeneca PLC (NYSE:AZN) beats CenturyLink, Inc. (NYSE:CTL) on a total of 7 of the 14 factors compared between the two stocks. AZN 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, AZN is more undervalued relative to its price target. Finally, AZN has better sentiment signals based on short interest.