Should Investors Buy The Dip In Centurylink?
Centurylink Inc (NYSE: CTL), the second largest U.S. communications provider to global enterprise customers, reported mixed fourth-quarter results and management slashed its dividend payout by 50 percent.
Wells Fargo: Pain For Long-Term Gain
High dividend companies like Centurylink within the Incumbent local exchange carrier (ILEC) segment are operating an unsustainable model, Wells Fargo's Jennifer Fritzsche said in a research report. The company's decision to slash its dividend from $2.16 per share per year to $1.00 per share per year will result in "near-term pain" but could translate to a "long-term gain."
The company lowered its net leverage target from three to four-times to 2.75 to 3.25 times and established a NOL Rights Plan to protect $7.3 billion of net operating losses against future taxable income.
Fritzche said during the conference call, Centurylink's management "came out fighting" and detailed the multiple capabilities its asset base can be used for, including dark fiber and hyperscale deployment. While this narrative is certainly encouraging as management is explaining how its assets can "bring it things it lacks," there isn't any visibility towards new big deals in the near term.
Fritzsche maintains a Market Perform rating on Centurylink with a price target lowered from $19 to $14.
Guggenheim: 'Time Will Tell'
Centurylink's in-line earnings is overshadowed by the dividend reduction, Guggenheim Partners' Mike McCormack said. While such a move is consistent with what the research firm had been advocating for, it only "time will tell" if the dividend reduction is significant enough to turn the business around. The key question investors will be asking is what dividend yield is sufficient enough to invest in a company whose outlook is plagued with multiple challenges.
McCormack maintains at Sell, with an unchanged $11 price target.
Citi: Dividend Comparison
Centurylink's revised dividend payout implies 33 percent on its guided free cash flow of $3.1 to $3.4 billion, Citi's Michael Rollins said in a research report. The dividend yield should still trade wider than AT&T Inc. (NYSE: T)'s dividend yield of 6.84 percent.
Rollins maintains at Sell, with an unchanged $11 price target.
Price Action
Shares of Centurylink hit a new 52-week low of $12.90 Thursday and was down around 12 percent on the day.
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CenturyLink Is 'Poorly Positioned,' Guggenheim Says In Downgrade
Latest Ratings for CTL
Feb 2019 | JP Morgan | Downgrades | Overweight | Neutral |
Feb 2019 | Citigroup | Downgrades | Neutral | Sell |
Jan 2019 | Guggenheim | Downgrades | Neutral | Sell |
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