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Windstream's Reverse Stock Split to Attract More Investors?

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Windstream Holdings, Inc. WIN recently completed its 1-for-5 reverse stock split process to pull up its sagging share price.

In the company’s annual meeting held on May 21, stockholders approved the reverse split decision. Consequently, the amount of common stock fell from 375 million shares to 75 million and preferred stock dropped from 33.3 million to 6.7 million. Aggregately, total outstanding shares declined from about 200 million to approximately 40 million.

Strategic Rationale

The company believes that this strategic move will raise the share price and hence attract more investors. It took this decision in a bid to revive its falling share price, possibly to avoid the general impression of being a penny stock.

Additionally, the company also took a particular policy in consideration, which restricts institutional investors from buying stocks priced below a certain floor price. For this reason, customers are discouraged by brokers from buying such stocks. The higher share price resulting from the reverse stock split will alleviate this concern to some extent and bring the stock to the attention of potential investors.

Further, the SEC guidelines mandate a listed company to maintain a minimum share price of $1.00. If the share price of the company falls below the $1.00 floor price for 30 consecutive days, it risks delisting. The current price trend of Windstream suggests that this may be a major reason behind the reverse stock split move.

Also, in the last quarter, the company reported a significant net loss of $121.4 million or loss of 65 cents per share. This also missed the Zacks Consensus Estimate of a loss of 59 cents. The company’s reverse stock split will improve the future earnings per share, making this a major motivation behind the decision.

Price Performance

Windstream has underperformed the industry in the past 12 months. The stock has lost an alarming 72.2% compared with a decline of 9.8% for the industry in this period. However, given the necessary steps taken by the company, which include the reverse stock split, the worst is expected to be over.

Zacks Rank and Stocks to Consider

Windstream currently has a Zacks Rank #3 (Hold). Some better-ranked stocks in the industry are BlackBerry Limited BB with a Zacks Rank #1 (Strong Buy), Ubiquiti Networks, Inc. UBNT and TIM Participacoes S.A. TSU, carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

BlackBerry has an expected long-term earnings growth rate of 18.6%.

Ubiquiti has an expected long-term earnings growth rate of 18.6%.

TIM Participacoes S.A. has an expected long-term earnings growth rate of 26.2%.

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