We previously analyzed CenturyLink (CTL) versus Frontier Communications Corporation (FTR) and Windstream Corporation (WIN), two other rural telecommunications firms and we still believe that CenturyLink offers the best risk-reward scenario of the three firms, due to its steady business performance, strong generation of free cash flows and growth potential from Savvis, especially after seeing each company’s recent performance and forward guidance.

CenturyLink, Inc. (CTL) CenturyLink is the leader in the rural-telecom services industry segment and the third largest U.S. telecom company by market capitalization, with a market cap of $24.6B as well as the third largest by total access lines. CenturyLink has been focusing is marketing and sales efforts on its strategic services, which consist of private line, Broadband, Multi-Protocol Label Switching, data center hosting, video and satellite digital TV through its partnership with DIRECTV, Voice over Internet Protocol and Verizon Wireless (VZ) resale services. CenturyLink reported adjusted earnings per share of $.68 on May 9th, which exceeded consensus estimates by $.10. CTL’s pro forma revenue decline improved to 2.68% in Q1 2012 year-over-year, which was an improvement from the 3% pro forma revenue decline in Q4 2011 and a 3.6% pro forma revenue decline in Q1 2011. We believe that management has the company on track to meet or exceed its goal to reduce its annual revenue rate of decline to 1.5%-2.5% pro forma.

Highlights from Q1 2012 include the following:

  • Continued improvement in line loss trend during first quarter 2012 with 6.4% annual decline compared to 7.6% annual decline in pro forma first quarter 2011
  • Raised annual operating expense synergy target for the Qwest acquisition to $650 million from $575 million and exited first quarter 2012 with annual run-rate operating expense synergies of approximately $340 million related to Qwest integration.
  • Added more than 89,000 high-speed Internet customers to end first quarter 2012 with 5.64 million subscribers, representing 4.2% annual growth over pro forma first quarter 2011.
  • Expanded PrismTV subscribers by over 20% in first quarter 2012 from fourth quarter 2011 and increased penetration of available homes in our markets to more than 8%.
  • Prism TV gained 15,000 new subscribers to end the quarter with 85,000 subscribers. 55% of new Prism TV subscribers represented new CenturyLink subscribers.
  • Wholesale Markets completed 650 fiber builds to end the quarter with 10,800 fiber towers.
  • Savvis saw quarterly bookings increase by 26% versus last year’s levels.
  • Savvis announced a joint venture with Digital Realty Trust (DLR) to build a data center in the Hong Kong financial district and launched Savvis Symphony cloud products in Hong Kong and Japan.
  • Savvis ended Q1 with 51 data centers and 1.36M square feet of total sellable floor space.
  • CTL generated $920M in Free Cash Flows during the quarter.
  • CTL guidance for Q2 2012 Adjusted was $.59-$.64, which led analysts to increase consensus EPS estimates by 3.3%.
  • For FY2012, CTL increased operating cash flow guidance ranges by $50M and adjusted EPS ranges by $.10.

Disclaimer: Under no circumstances must this document be considered an offer to buy, sell, subscribe for or trade securities or other instruments.

Disclosure: The author is long CTL shares.

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