CenturyLink, Inc. (NYSE:CTL) shares are up more than 3.42% this year and recently decreased -1.26% or -$0.22 to settle at $17.25. Sempra Energy (NYSE:SRE), on the other hand, is up 3.13% year to date as of 04/12/2018. It currently trades at $110.27 and has returned -1.13% during the past week.
CenturyLink, Inc. (NYSE:CTL) and Sempra Energy (NYSE:SRE) are the two most active stocks in the Telecom Services – Domestic industry based on today’s trading volumes. The market is clearly enthusiastic about both these stocks, but which is the better investment? To answer this, we will compare the two companies based on the strength of their growth, profitability, risk, returns, valuation, analyst recommendations, and insider trends.
The ability to consistently grow earnings at a high compound rate is a defining characteristic of the best companies for long-term investment. Analysts expect CTL to grow earnings at a -12.12% annual rate over the next 5 years. Comparatively, SRE is expected to grow at a 9.60% annual rate. All else equal, SRE’s higher growth rate would imply a greater potential for capital appreciation.
Profitability and Returns
Just, if not more, important than the growth rate is the quality of that growth. Growth can actual be harmful to investors if it comes at the cost of weak profitability and low returns. To adjust for differences in capital structure we’ll use EBITDA margin and Return on Investment (ROI) as measures of profitability and return. CenturyLink, Inc. (CTL) has an EBITDA margin of 33.8%. This suggests that CTL underlying business is more profitable CTL’s ROI is 2.90% while SRE has a ROI of 4.80%. The interpretation is that SRE’s business generates a higher return on investment than CTL’s.
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 0.50 for SRE. This means that CTL can more easily cover its most immediate liabilities over the next twelve months. CTL’s debt-to-equity ratio is 1.61 versus a D/E of 1.53 for SRE. CTL is therefore the more solvent of the two companies, and has lower financial risk.