EHC vs. CHE: Which Stock Should Value Investors Buy Now?
As the curtains come down on the first-quarter reporting cycle, industry experts are conducting various analysis and comparisons to gauge the underlying metrics and relative performance. Let us perform a similar comparative analysis between two stocks in the Zacks Wireless National industry — Windstream Holdings, Inc. WIN and CenturyLink, Inc. CTL — to pick the better investment option.
Windstream reported tepid first-quarter results, wherein both the top line and the bottom line missed the respective Zacks Consensus Estimate. However, both the figures improved on a year-over-year basis. For the reported quarter, the company incurred a net loss of $121.4 million or a loss of 65 cents per share compared with a net loss of $111.3 million or a loss of 89 cents per share in the year-ago quarter. The bottom line was wider than the Zacks Consensus Estimate of a loss of 59 cents per share. Total revenues increased 6% year over year to $1,454.3 million, supported by growing customer demand for strategic services including Unified Communications as a Service and SD-WAN, and improvement in broadband subscriber trend. The top line, however, missed the Zacks Consensus Estimate of $1,464 million.
CenturyLink reported mixed results with net income of $115 million or 11 cents per share compared with $163 million or 30 cents per share in the year-ago quarter. The year-over-year decrease in earnings despite higher revenues was primarily due to higher operating expenses. Adjusted earnings for the quarter were 25 cents per share, which comfortably surpassed the Zacks Consensus Estimate of 15 cents. Total operating revenues increased 41% year over year to $5,945 million due to incremental revenues from Level 3. The top line, however, missed the Zacks Consensus Estimate of $5,963 million.
Based on the recent earnings report, CenturyLink has a clear edge over Windstream due to a better earnings surprise percentage.
Over the past six months, CenturyLink has clearly outperformed Windstream with an average return of 39.6% against a loss of 40.1% for the latter while the industry declined 4.1%.
For 2018, Windstream reiterated its earlier guidance. The company anticipates service revenues to improve slightly year over year. The company projects adjusted capital expenditure in the band of $750-$800 million. Adjusted OIBDAR is expected between $1.95 billion and $2.01 billion. Management expects to generate around $165 million of adjusted free cash flow in 2018.
For 2018, CenturyLink reiterated its adjusted EBITDA and free cash flow outlook. Adjusted EBITDA is anticipated in the range of $8.75-$8.95 billion. Free cash flow is expected within $3.15-$3.35 billion. Free cash flow after dividends is projected between $0.85 billion and $1.05 billion. Capital expenditures are likely to be around 16% of revenues.
Post earnings release, Windstream’s current-quarter estimates improved from a loss of 58 cents to a loss of 57 cents per share, while that for the current fiscal declined from a loss of $2.03 to a loss $2.38.
CenturyLink’s current-quarter estimates increased to 21 cents from 18 cents following the earnings release while current-year estimates jumped to 89 cents per share from 62 cents. With positive estimate revisions, investor sentiments appear to be more bullish on CenturyLink than Windstream.
Both Windstream and CenturyLink currently carry a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
To Sum Up
Based on the current scenario, CenturyLink seems to have an edge over Windstream on most fronts and is therefore a better investment option.
A couple of better-ranked stocks in the industry are Motorola Solutions, Inc. MSI and Ubiquiti Networks, Inc. UBNT, both carrying a Zacks Rank #2 (Buy).
Motorola has a long-term earnings growth expectation of 8%. It surpassed estimates in each of the trailing four quarters with an average positive earnings surprise of 12.1%.
Ubiquiti Networks has a long-term earnings growth expectation of 18.6%. It topped estimates thrice in the trailing four quarters with an average positive earnings surprise of 8.9%.
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Motorola Solutions, Inc. (MSI) : Free Stock Analysis Report
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CenturyLink, Inc. (CTL) : Free Stock Analysis Report
Windstream Holdings, Inc. (WIN) : Free Stock Analysis Report
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