This Stock Has Several Growth Catalysts
Piyush is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
The introduction of high speed data services by wireless service providers like AT&T and Verizon (NYSE: VZ) have somewhat troubled the fixed broadband service providers. The wireless carriers may have the mobility advantage, but fixed broadband players offer higher bandwidth at cheaper rates. Let’s face it, the world is moving to high definition and possibly to 4k resolution. An end user would always prefer downloading Blu-ray content from his fixed broadband, as its costs way less than the available 4G data services. In my opinion, high speed broadband services are here to stay, and here's how you can capitalize on it.
AT&T’s 4G-LTE, 5GB monthly plan costs $50, whereas CenturyLink (NYSE: CTL) offers a 12mbps broadband connection with a monthly data cap of 250GB for the same price. Also CenturyLink has worked out a deal with Verizon, under which users subscribing to Verizon’s high speed data services get an option to CenturyLink’s services at discounted tariffs. In the previous quarter, CenturyLink reported a net addition of 44,000 high speed broadband subscribers, taking the overall company subscriber count to 5.8 million. This showcases that the company isn’t getting “slaughtered “by wireless service providers, and instead is busy growing its subscriber base due the increasing demand for Full-HD content.
In order to beat the mobility advantage presented by wireless data providers, fixed broadband providers need to expand tactically and introduce new products in the market. Century Link seems to be doing this, as it been involved in a series of acquisitions and product launches that have ensured steady growth for the company over the last few years.
The company acquired Qwest Communications for $22 billion plus stock last year, a deal in which CenturyLink became a leading broadband service provider. The company also acquired Savvis for $2.5 billion, which allowed CenturyLink to integrate cloud services into their existing services. Prism TV, which is one of the key positive catalysts for CenturyLink, has been doing very well lately. Prism TV offers interactive TV services along with high speed broadband, and has attracted over 10k subscribers in the recent quarter.
In the recent earnings release, the company reported quarterly free cash flows of $905 million compared to $881 million in the last year's quarter. Net income rose to $237 million, up from $208 million and the adjusted net income stood at $0.66 per share beating the street’s estimates of $0.49 per share. The revenues fell fractionally, but beat the street's estimates. Prism TV, one of the growth drivers for CenturyLink, witnessed a subscriber addition of 11% in Q3 taking the total subscriber count to 104,000.
The competitors of CenturyLink seem to be struggling. Fairpoint Communications recently reported a quarterly net loss of $37.3 million down from $279.4 million YoY. Operating expenses stood at $186.4 million, and the revenues shrank by 6.12%. In my opinion not much can be expected from Fairpoint as its operating expenses overshadow its net income. Windstream (NASDAQ: WIN), another competitor reported net income of $53.7 million down from $78.1 million YoY. The company was able to restructure its operations in the third quarter, and investors can expect annual savings of up to $40 million. However, management at Windstream cut its annual operating earnings forecast from $2.43-$2.5 billion to $2.41-$2.43 billion. Overall, the street was disappointed by Windstream’s announcements.
The street has been buzzing with gossip, as TW Telecom (NASDAQ: TWTC) is rumored to be a potential acquisition target for CenturyLink. TW Telecom is the third largest Ethernet provider in the US, providing VOIP and security services along with high speed internet and data services, catering to enterprise organizations. The acquisition would allow CenturyLink an entry into corporate servicing, but even if the management rebuffs the acquisition rumors, CenturyLink still appears to be a great investment option due all the mentioned reasons.
PiyushArora has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Motley Fool newsletter services recommend AT&T.; Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!