Can Value Investors Consider CenturyLink (CTL) a Good Stock?

September 27, 2019 Stock Analysts 0

Zacks

Value investing is easily one of the most popular ways to find great stocks in any market environment. After all, who wouldn’t want to find stocks that are either flying under the radar and are compelling buys, or offer up tantalizing discounts when compared to fair value?
One way to find these companies is by looking at several key metrics and financial ratios, many of which are crucial in the value stock selection process. Let’s put CenturyLink, Inc. (CTL) stock into this equation and find out if it is a good choice for value-oriented investors right now, or if investors subscribing to this methodology should look elsewhere for top picks:
PE Ratio
A key metric that value investors always look at is the Price to Earnings Ratio, or PE for short. This shows us how much investors are willing to pay for each dollar of earnings in a given stock, and is easily one of the most popular financial ratios in the world. The best use of the PE ratio is to compare the stock’s current PE ratio with: a) where this ratio has been in the past; b) how it compares to the average for the industry/sector; and c) how it compares to the market as a whole.
On this front, CenturyLink has a trailing twelve months PE ratio of 9.29, as you can see in the chart below:
Value investing is easily one of the most popular ways to find great stocks in any market environment. After all, who wouldn’t want to find stocks that are either flying under the radar and are compelling buys, or offer up tantalizing discounts when compared to fair value?
One way to find these companies is by looking at several key metrics and financial ratios, many of which are crucial in the value stock selection process. Let’s put CenturyLink, Inc. CTL stock into this equation and find out if it is a good choice for value-oriented investors right now, or if investors subscribing to this methodology should look elsewhere for top picks:
PE Ratio
A key metric that value investors always look at is the Price to Earnings Ratio, or PE for short. This shows us how much investors are willing to pay for each dollar of earnings in a given stock, and is easily one of the most popular financial ratios in the world. The best use of the PE ratio is to compare the stock’s current PE ratio with: a) where this ratio has been in the past; b) how it compares to the average for the industry/sector; and c) how it compares to the market as a whole.
On this front, CenturyLink has a trailing twelve months PE ratio of 9.29, as you can see in the chart below:
This level actually compares quite favorably with the market at large, as the PE for the S&P 500 stands at about 18.4. Also, if we focus on the long-term PE trend, CenturyLink’s current PE level puts it slightly below its midpoint of 10.99 over the past five years.
The stock’s PE also compares quite favorably with the Computer and Technology Market’s trailing twelve months PE ratio, which stands at 22.41. This indicates that the stock is undervalued right now, compared to its peers.
Meanwhile, CenturyLink has a forward PE ratio (price relative to this year’s earnings) of 9.56, which slightly higher than the current level. So, so it is fair to expect an increase in share price in the near term too.
P/S Ratio
Another key metric to note is the Price/Sales ratio. This approach compares a given stock’s price to its total sales, where a lower reading is generally considered better. Some people like this metric more than other value-focused ones because it looks at sales, something that is far harder to manipulate with accounting tricks than earnings.
Right now, CenturyLink has a P/S ratio of just 0.59. This is quite lower than the S&P 500 average, which comes in at 3.24x right now. Also, as we can see in the chart below, this is much below the highs for this stock in particular over the past few years.
Meanwhile, CenturyLink has a forward PE ratio (price relative to this year’s earnings) of 9.56, which slightly higher than the current level. So, so it is fair to expect an increase in share price in the near term too.
P/S Ratio
Another key metric to note is the Price/Sales ratio. This approach compares a given stock’s price to its total sales, where a lower reading is generally considered better. Some people like this metric more than other value-focused ones because it looks at sales, something that is far harder to manipulate with accounting tricks than earnings.
Right now, CenturyLink has a P/S ratio of just 0.59. This is quite lower than the S&P 500 average, which comes in at 3.24x right now. Also, as we can see in the chart below, this is much below the highs for this stock in particular over the past few years.

Broad Value Outlook

In aggregate, CenturyLink currently has a Value Score of A, putting it into the top 20% of all stocks we cover from this look. This makes CenturyLink a solid choice for value investors and some of its other key metrics make this pretty clear too.

For example, the PEG ratio for CenturyLink is just 0.9, a level that is far lower than the industry average of 2.35. The PEG ratio is a modified PE ratio that takes into account the stock’s earnings growth rate.

What About the Stock Overall?

In particular, it is worth noting that the company has a Growth Score of A and a Momentum Score of F. This gives CTL a Zacks VGM score — or its overarching fundamental grade — of A. (You can read more about the Zacks Style Scores here >>)

Meanwhile, the company’s recent earnings estimates have been mixed at best. The current quarter has seen three estimates go down in the past sixty days compared to two upward revisions, while the current year estimate has seen four down and three up in the same time period.

This has had a mixed effect on the consensus estimate. While the current-quarter consensus estimate has dipped 8.6% over the past two months, the current-year estimate has remained stable. You can see the consensus estimate trend and recent price action for the stock in the chart below:

CenturyLink, Inc. Price and Consensus

CenturyLink, Inc. Price and Consensus

CenturyLink, Inc. price-consensus-chart | CenturyLink, Inc. Quote

Such mixed analyst sentiments is the reason why the stock has a Zacks Rank #3 (Hold) and why we are looking for in line performance from the company in the near term.

Bottom Line

CenturyLink is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. Despite a strong industry rank (among Top 28% of more than 250 industries), with a Zacks Rank #3 it is hard to get too excited about the stock.

Also, over the past two years, the broader industry has clearly underperformed the market at large, as you can see below:

So, value investors might want to wait for Zacks rank and analyst sentiments to turn around in this name first, but once that happens, this stock could be a compelling pick.
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So, value investors might want to wait for Zacks rank and analyst sentiments to turn around in this name first, but once that happens, this stock could be a compelling pick.
More Stock News: This Is Bigger than the iPhone!
It could become the mother of all technological revolutions. Apple sold a mere 1 billion iPhones in 10 years but a new breakthrough is expected to generate more than 27 billion devices in just 3 years, creating a $1.7 trillion market.
Zacks has just released a Special Report that spotlights this fast-emerging phenomenon and 6 tickers for taking advantage of it. If you don't buy now, you may kick yourself in 2020.

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