Windstream on Growth Trajectory, Competition Still a Woe
We issued an updated research report on Windstream Holdings, Inc. (WIN) on Sep 5. The company recently reported second-quarter 2014 adjusted earnings per share of 3 cents, which lagged the Zacks Consensus Estimate of 8 cents and were also lower than 7 cents per share earned in the year-ago quarter.
Currently, the Zacks Consensus Estimate for third quarter earnings is pegged at 5 cents, representing a decline of 36.1% on a year-over-year basis.
Despite a lackluster performance in the second quarter, we appreciate Windstream’s focus on improving sales, cost-cutting initiatives and planned pricing initiatives, which are expected to drive revenues and margins in the near term. Investments made in data center and fiber expansion will create further impetus for revenue growth in 2014. The company has also revealed its plan to expand its Carrier Switched Ethernet services across the U.S.
Windstream is expected to register high profits in the coming quarters on the back of a strong domestic presence, strategic growth across segments and a capital efficient business model. Additionally, the company recently cut down its workforce strength by 400 with the aim to improve profitability and operational efficiency. Consequently, the company expects adjusted OIBDA margin to improve through the rest of 2014, owing to improved sales, price rise and expense management initiatives.
Wireless competition has resulted in a reduction in the company’s access lines, and has led to pricing pressure within the industry. Wireless carriers are continually expanding and improving their network coverage while also lowering prices. This has led most customers to opt out of traditional wireline phone service and instead rely solely on wireless phones. This trend is expected to continue, thereby negatively affecting the number of served access lines at Windstream.
The company also remains stressed with losses in the wholesale business. These are, in particular, diminishing access lines, lower switched access rates and fewer minutes of usage. Windstream expects wholesale revenues to improve, albeit at a slower pace. Additionally, Windstream’s carrier transport business continues to remain under pressure as the telecom operators demand smaller amounts of copper-based dedicated circuits to transfer data traffic between different points within their network. It expects total revenue in 2014 to range from down 2.5% to up 1% compared to 2013.
Windstream currently has a Zacks Rank #3 (Hold).
Stocks That Warrant a Look
RF Micro Devices Inc. (RFMD), Meru Networks, Inc. (MERU) and Ruckus Wireless, Inc. (RKUS) are some of the stocks worth considering in this sector over the near term. While RF Micro Devices sports a Zacks Rank #1 (Strong Buy), Meru Networks and Ruckus Wireless carry a Zacks Rank #2 (Buy).
Read the Full Research Report on WIN
Read the Full Research Report on RKUS
Read the Full Research Report on RFMD
Read the Full Research Report on MERU
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