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CenturyLink Inc Valuation – July 2017 $CTL

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Stocks for Using A Benjamin Graham Value Investing Strategy – March 2017.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how CenturyLink Inc (CTL) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): CenturyLink, Inc. is an integrated communications company. The Company is engaged in providing an array of communications services to its residential and business customers. Its segments include business, which provides strategic, legacy and data integration products and services to small, medium and enterprise business, wholesale and governmental customers, including other communication providers, and consumer, which provides strategic and legacy products and services to residential customers. Its communications services include local and long-distance voice, broadband, Multi-Protocol Label Switching (MPLS), private line (including special access), Ethernet, colocation, hosting (including cloud hosting and managed hosting), data integration, video, network, public access, Voice over Internet Protocol (VoIP), information technology and other ancillary services. As of December 31, 2016, it served approximately 5.9 million broadband subscribers and 325,000 Prism TV subscribers.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of CTL – July 2017

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $12,908,594,070 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 0.97 Fail
3. Earnings Stability Positive EPS for 10 years prior Fail
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end -49.80% Fail
6. Moderate PEmg Ratio PEmg < 20 15.38 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 0.95 Pass
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 0.97 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 -142.03 Fail
3. Earnings Stability Positive EPS for 5 years prior Fail
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

EPSmg $1.52
MG Growth Estimate 6.78%
MG Value $33.54
Opinion Undervalued
MG Grade B-
MG Value based on 3% Growth $22.04
MG Value based on 0% Growth $12.92
Market Implied Growth Rate 3.44%
Current Price $23.37
% of Intrinsic Value 69.67%

Centurylink Inc does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor.  The Defensive Investor is concerned with the  low current ratio, insufficient earnings stability or growth over the last ten years. The Enterprising Investor has concerns regarding the level of debt relative to the current assets, and the lack of earnings stability over the last five years.  As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $1.05 in 2013 to an estimated $1.52 for 2017.  This level of demonstrated earnings growth outpaces the market’s implied estimate of 3.44% annual earnings growth over the next 7-10 years.  As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value above the price.

At the time of valuation, further research into Centurylink Inc revealed the company was trading below its Graham Number of $34.99.  The company pays a dividend of $2.16 per share, for a yield of 9.2%, putting it among the best dividend paying stocks today.  Its PEmg (price over earnings per share – ModernGraham) was 15.38, which was below the industry average of 37.96, which by some methods of valuation makes it one of the most undervalued stocks in its industry.  Finally, the company was trading above its Net Current Asset Value (NCAV) of $-52.31.

Centurylink Inc performs fairly well in the ModernGraham grading system, scoring a B-.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$52.31
Graham Number $34.99
PEmg 15.38
Current Ratio 0.97
PB Ratio 0.95
Current Dividend $2.16
Dividend Yield 9.24%
Number of Consecutive Years of Dividend Growth 0

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Most Recent Balance Sheet Figures

Balance Sheet Information 3/1/2017
Total Current Assets $4,968,000,000
Total Current Liabilities $5,096,000,000
Long-Term Debt $18,180,000,000
Total Assets $46,602,000,000
Intangible Assets $24,618,000,000
Total Liabilities $33,296,000,000
Shares Outstanding (Diluted Average) 541,522,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $2.22
Dec2016 $1.16
Dec2015 $1.58
Dec2014 $1.36
Dec2013 -$0.40
Dec2012 $1.25
Dec2011 $1.07
Dec2010 $3.13
Dec2009 $3.23
Dec2008 $3.52
Dec2007 $3.72
Dec2006 $3.07
Dec2005 $2.49
Dec2004 $2.41
Dec2003 $2.35
Dec2002 $5.61
Dec2001 $1.05
Dec2000 $0.90
Dec1999 $1.70
Dec1998 $1.64
Dec1997 $1.87

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $1.52
Dec2016 $1.11
Dec2015 $1.05
Dec2014 $0.95
Dec2013 $1.05
Dec2012 $1.99
Dec2011 $2.55
Dec2010 $3.31
Dec2009 $3.33
Dec2008 $3.27
Dec2007 $3.03
Dec2006 $2.86
Dec2005 $2.76
Dec2004 $2.75
Dec2003 $2.72
Dec2002 $2.67
Dec2001 $1.27

Recommended Reading:

Other ModernGraham posts about the company

CenturyLink Inc Valuation – February 2016 $CTL
27 Companies in the Spotlight This Week – 12/20/14
CenturyLink Inc. Annual Valuation – 2014 $CTL

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Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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