) shares have gained nearly 34.73% since August 2011, thanks in
large part to the gradual recovery of the U.S. economy and the
acquisitions of Embarq, Qwest and Savvis . Moreover, this wireline
service provider currently enjoys an exceptional dividend yield of
Shares received a further boost after the company reported strong
first quarter 2012 earnings results, which included a 15.3%
positive earnings surprise and a solid guidance. Earnings estimates
have been moving higher since then, helping it achieve a Zacks #2
Rank (Buy) stock.
A Healthy First Quarter
On May 9, CenturyLink reported first quarter 2012 adjusted net
earnings per share of 68 cents, well above the Zacks Consensus
Estimate of 59 cents but below last year's 78 cents. The decline
was mainly due to an after-tax charge of $43 million related to
severance costs associated with expense reduction initiatives.
Total revenue of $4.61 billion was in line with the Zacks Consensus
Estimate and improved an enormous 171.8% year over year.
Financial Guidance Shoots Up
For 2012, management raised its operating cash flow estimate to
$7.45 - $7.65 billion from $7.4 -$7.6 billion. The forecast for
adjusted earnings per share was increased to between $2.35 and
$2.55 from $2.25 to $2.45. However, the projections for operating
revenue ($18.2 -$18.4 billion), free cash flow ($3.2- $3.4 billion)
and capital expenditures ($2.6 -$2.8 billion) remained unchanged.
Earnings Estimate Revision Growing
Estimates for CenturyLink have been rising significantly over the
last 60 days. The Zacks Consensus Estimate for 2012 moved up 3.33%
to $2.48, indicating year-over-year growth of 12.14%.
Exceptional Dividend Yield
CenturyLink has a current dividend yield of 7.3%, which is above
its 5-year average dividend of 6.5%. In contrast, the average
dividend yield of the industry is 4.5%. The dividend rate has
increased by 63% annually over the last 5 years, resulting in a
payout ratio of a whopping 333.0%.
Valuation Looks Compelling
Valuation of CenturyLink looks reasonable. The current forward P/E
of 16.02x implies an attractive discount of 24.2% from the peer
group average of 19.89x. However, with respect to the Price/Sales,
the stock is currently trading at 1.35x, a 17.4% premium to the
peer group average of 1.15x. The stock looks attractive given a
trailing 12-month ROE of 6.4%, which is 68.42% above the peer group
average of 3.8%.
The stock has been consistently trading above its 200 and 50-days
moving averages since January 2012. Average volume also remains
good at 5,049K. The widening gap between the stock price line and
that of 50 and 200-days moving averages show the growing momentum
CenturyLink completed the full integration of Embarq (acquired in
July 2009) in the fourth quarter of 2011, achieving annual cost
synergies of approximately $375 million. Qwest was acquired in
April 2011 and CenturyLink management is hopeful that full
integration will provide annual cost synergy of around $650
million. Savvis was acquired in July 2011 and helped CenturyLink to
diversify into the cloud computing business, which is growing by
leaps and bounds. Savvis will more than offset the decline of
legacy voice and access revenues.
Three major acquisitions, a fabulous dividend yield and a strong
balance sheet make CenturyLink a solid pick for growth & income
Headquartered in Monroe, Louisiana, CenturyLink Inc. was founded in
1968 and is currently the third largest wireline service provider
in the U.S. The company provides local and long-distance, network
access, private line, public access, broadband, data, managed
hosting, colocation, wireless, and video services to individual
consumers and business enterprises.
This Week's Growth & Income Zacks Rank Buy
H&R Block Inc.
) has delivered seven positive earnings surprises in the last 10
quarters and boasts a dividend yield of 5.01%, sufficiently higher
than the industry average of 1.83%. Following the fiscal fourth
quarter earnings release, shares of this tax service provider are
moving upward. The company currently holds a Zacks #2 Rank (Buy).
Read the full article.
Earnings estimates for,
Genuine Parts Company
) are on the rise given its solid first quarter results, bullish
guidance and the May 1st acquisition of Quaker City Motor Parts - a
leading supplier of National Automotive Parts Association (NAPA)
automotive parts. The replacement auto parts distributor also has a
commendable dividend yield of 3.3%. Earnings growth for this Zacks
#2 Rank (Buy) stock is expected to be strong in 2012 and 2013.
Read the full article.
CENTURYLINK INC (CTL): Free Stock Analysis
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