Philip Morris International Inc. (NYSE:PM) shares are down more than -20.91% this year and recently increased 0.41% or $0.34 to settle at $83.56. CenturyLink, Inc. (NYSE:CTL), on the other hand, is up 12.17% year to date as of 07/24/2018. It currently trades at $18.71 and has returned -4.69% during the past week.
Philip Morris International Inc. (NYSE:PM) and CenturyLink, Inc. (NYSE:CTL) are the two most active stocks in the Cigarettes 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 PM to grow earnings at a 8.36% annual rate over the next 5 years. Comparatively, CTL is expected to grow at a -14.39% annual rate. All else equal, PM’s higher growth rate would imply a greater potential for capital appreciation.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 33.6% for CenturyLink, Inc. (CTL). PM’s ROI is 39.50% while CTL has a ROI of 2.90%. The interpretation is that PM’s business generates a higher return on investment than CTL’s.Cash Flow
If there’s one thing investors care more about than earnings, it’s cash flow. On a percent-of-sales basis, PM’s free cash flow was 0% 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
Liquidity and leverage ratios are important because they reveal the financial health of a company. PM has a current ratio of 1.20 compared to 0.90 for CTL. This means that PM can more easily cover its most immediate liabilities over the next twelve months.Valuation
PM trades at a forward P/E of 15.01, and a P/S of 4.27, compared to a forward P/E of 18.20, a P/B of 0.85, and a P/S of 1.08 for CTL. 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. PM is currently priced at a -15.35% to its one-year price target of 98.71. Comparatively, CTL is -7.28% relative to its price target of 20.18. This suggests that PM 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. PM has a beta of 0.90 and CTL’s beta is 0.83. 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. PM has a short ratio of 1.41 compared to a short interest of 9.81 for CTL. This implies that the market is currently less bearish on the outlook for PM.Summary
Philip Morris International Inc. (NYSE:PM) beats CenturyLink, Inc. (NYSE:CTL) on a total of 9 of the 14 factors compared between the two stocks. PM is growing fastly, generates a higher return on investment, higher liquidity and has lower financial risk. In terms of valuation, PM is the cheaper of the two stocks on an earnings and book value, PM is more undervalued relative to its price target. Finally, PM has better sentiment signals based on short interest.