Mondelez International, Inc. (NASDAQ:MDLZ) shares are down more than -0.82% this year and recently increased 0.50% or $0.21 to settle at $42.45. CenturyLink, Inc. (NYSE:CTL), on the other hand, is up 12.47% year to date as of 07/20/2018. It currently trades at $18.76 and has returned -5.63% during the past week.
Mondelez International, Inc. (NASDAQ:MDLZ) and CenturyLink, Inc. (NYSE:CTL) are the two most active stocks in the Confectioners 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 MDLZ to grow earnings at a 9.91% annual rate over the next 5 years. Comparatively, CTL is expected to grow at a -14.39% annual rate. All else equal, MDLZ’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 33.6% for CenturyLink, Inc. (CTL). MDLZ’s ROI is 6.30% while CTL has a ROI of 2.90%. The interpretation is that MDLZ’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. MDLZ’s free cash flow (“FCF”) per share for the trailing twelve months was -0.14. Comparatively, CTL’s free cash flow per share was +0.26. On a percent-of-sales basis, MDLZ’s free cash flow was -0.8% while CTL converted 1.59% 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
Analysts look at liquidity and leverage ratios to assess how easily a company can cover its liabilities. MDLZ has a current ratio of 0.50 compared to 0.90 for CTL. This means that CTL can more easily cover its most immediate liabilities over the next twelve months. MDLZ’s debt-to-equity ratio is 0.71 versus a D/E of 1.59 for CTL. CTL is therefore the more solvent of the two companies, and has lower financial risk.Valuation
MDLZ trades at a forward P/E of 16.12, a P/B of 2.39, and a P/S of 2.41, compared to a forward P/E of 18.25, a P/B of 0.85, and a P/S of 1.09 for CTL. MDLZ is the cheaper of the two stocks on an earnings basis but is expensive in terms of P/B and P/S ratio. 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. MDLZ is currently priced at a -12.09% to its one-year price target of 48.29. Comparatively, CTL is -7.04% relative to its price target of 20.18. This suggests that MDLZ is the better investment over the next year.
Risk and Volatility
Beta is a metric that investors frequently use to analyze a stock’s systematic risk. A beta above 1 implies above average market volatility. Conversely, a stock with a beta below 1 is seen as less risky than the overall market. MDLZ has a beta of 0.85 and CTL’s beta is 0.83. 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. MDLZ has a short ratio of 1.42 compared to a short interest of 9.75 for CTL. This implies that the market is currently less bearish on the outlook for MDLZ.Summary
CenturyLink, Inc. (NYSE:CTL) beats Mondelez International, Inc. (NASDAQ:MDLZ) on a total of 7 of the 14 factors compared between the two stocks. CTL is growing fastly, 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 book value and sales basis, Finally, BP has better sentiment signals based on short interest.