On Dec 13, we maintained our Neutral recommendation on
). The company is characterized by a reformed business structure,
broadband expansion, faster fiber builds, better cloud computing
services and penetration of Prism TV into new markets.
However, deteriorating legacy voice and access revenues due to
wireless substitution remain significant risks to the carrier.
The leading landline operator holds a Zacks Rank #3 (Hold).
CenturyLink has redesigned its operating segments to
strengthen its grip over the market as well as remain fully
committed to wholesale, hosting and consumer customers. Owing to
its long-standing ties with clients by bundling of integrated
services, launch of new and attractive services, consistent
technology upgrades and infrastructure enhancement, the company
has witnessed a slower rate of revenue declines.
The landline carrier is continuing with its fiber-to-the-tower
(FTTT) expansion, and remains on track to build 3,500 to 4,000
fiber towers in 2013, which is slightly below its previous
expectation of 4,000 to 5,000 towers. The fiber build will
position the company for long-term growth and reduce the current
revenue compression by early 2014.
CenturyLink continues to expand its multi-tenant unit (MTU),
which provides enhanced cloud services to business houses with
500 MB of service. Apart from MTU, CenturyLink is focusing on
GPON technology, which offers a broadband speed of up to 1GB.
Both MTU and GPON are appealing to business customers, as high
upstream speeds are generally required for smooth cloud
Additionally, the company continues to focus on data centre
expansion and plans to add 87,000 square feet of space within
2013 in order to generate higher revenues in collocation and
managed hosting and cloud services.
However, the company's core local phone business has slowed
considerably due to consistent decline in access lines.
Substitution of traditional wireline telephone services by
wireless and other competitive offerings and lower long distance
minutes of use are resulting in poor performances.
CenturyLink is facing problems in gaining market traction for
Savvis products, as some of its large clients are building their
own data centers, thus eliminating their exposure to Savvis.
Additionally, the company expects cash flow pressure to continue
as it shifts more toward low margin products and the cost
synergies from the Quest acquisition are nearing an end. Thus we
maintain a cautious view on the company.
Companies operating within the telecommunication sector that
are worth taking note of include
Hawaiian Telcom Holdco Inc.
Chungwa Telecom Company Ltd
Level 3 Communications Inc.
). HCOM carries a Zacks Rank #1 (Strong Buy) while CHT and LVLT
stocks currently carry a Zacks Rank #2 (Buy).
CHUNGHWA TELECM (CHT): Free Stock Analysis
CENTURYLINK INC (CTL): Free Stock Analysis
HAWAIIAN TELCOM (HCOM): Free Stock Analysis
LEVEL 3 COMM (LVLT): Free Stock Analysis
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