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Why CenturyLink Stock Gained 14% in August

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What happened

Telecom giant CenturyLink (NYSE: CTL) outpaced the market last month by gaining 14% compared to a 3% increase in the S&P 500, according to data provided by S&P Global Market Intelligence.

The boost added to impressive recent returns for investors, who have seen their stock rise by over 25% so far in 2018.

^SPX Chart
^SPX Chart

^SPX data by YCharts.

So what

CenturyLink's August rally was powered by surprisingly strong second-quarter earnings results. Early in the month, the company revealed that overall sales ticked lower by 2% for the period but adjusted profitability and cash flow both jumped thanks to progress executives made at integrating the newly acquired Level 3 Communications business.

Inside a server room.
Inside a server room.

Image source: Getty Images.

CenturyLink estimated that annualized savings achieved by the deal reached $675 million during the quarter and would eventually grow to around $850 million per year.

Now what

CEO Jeff Storey and his team are feeling more bullish about their combined telecommunications businesses, and they backed that optimism up with a more aggressive outlook for the year. Specifically, they now expect adjusted earnings between $9 billion and $9.15 billion, up from their prior range of $8.75 billion to $8.95 billion.

Free cash flow is trending higher, too, while income tax rates are falling. Thus, investors' earnings expectations are rising, and they responded to that brightening outlook by pushing CenturyLink stock higher last month.

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Demitrios Kalogeropoulos has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.