Here's Why You Should Hold CenturyLink (CTL) Amid Risks
On Jun 6, we issued an updated research report on CenturyLink Inc. CTL, a leading regional wireline service provider in the U.S. Currently, the stock carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The price performance of CenturyLink has been impressive over the past three months. Share price of the company gained 13.51%, while the Zacks classified Wireless National industry contracted 4.63%.
The company remains consistent with its network simplification and rationalization efforts, which have helped it to improve its end-to-end provisioning time and drive standardization. Its constant efforts to establish itself as a global leader in cloud infrastructure and the hosted IT solutions arena for enterprise customers are encouraging. CenturyLink’s strong network capabilities, integrated hosting and network solutions are likely to promote expansion in the cloud business. The company sees its managed and cloud services as a key differentiator from other players in the market which should boost its top line.
In May 2017, CenturyLink and Level 3 Communications Inc. LVLT moved closer in completing their proposed merger after receiving approvals from more than 15 states and territories. In Mar 2017, the proposed merger received overwhelming approval of about 96.3% of the company’s shareholders and more than 81.2% of Level 3 Communications’ investor. The combined entity is likely to generate $975 million of annual cash synergies. The deal is anticipated to be closed in the third quarter of 2017, subject to customary regulatory approvals. The combined entity will become formidable in the fiber-based metro-Ethernet and Internet market.
The growing momentum of CenturyLink’s Prism IPTV service has prompted it to plan the launch of its over the top (OTT) services in 2017. By foraying into the OTT space, the company has joined the likes of DISH Network Corp.’s DISH Sling TV and AT&T Inc.’s T DirecTV Now.
We also appreciate CenturyLink’s efforts to reward a quarterly cash dividend of 54 cents per share, payable on Jun 16, 2017, to shareholders of record on Jun 5, 2017.
However, the company continues to face persistent losses in its access lines and legacy voice services, on an organic basis. In the last reported first-quarter 2017, total access lines were 10.945 million, down 5.7% year over year. This is primarily due to the substitution of traditional wireline telephone services by wireless and other competitive offerings and lower long distance minutes of use.
Decline in subsidy payments by the Federal Universal Service Fund, tough competition, federal regulations, labor union issues and the need to upgrade technology remain headwinds. CenturyLink unveiled disappointing guidance for certain important metrics for the second quarter of 2017, compared to the last reported outlook for first quarter of 2017.
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