On Dec 5, 2013 we maintained our Neutral recommendation on one
of the major U.S. rural local exchange carriers (RLEC),
Windstream Holdings Inc.
). Over the long term, we expect the company to grow on
investments in fiber-to-the network and broadband network along
with proper expense management and a capital-efficient business
However, a competitive market scenario and soft enterprise and
carrier transport businesses remain concerns. The company
currently carries a Zacks Rank #3 (Hold).
Why the Reiteration?
We remain optimistic on Windstream's focus on expanding its
service offerings to businesses with VoIP services, data bundles,
cloud and managed services, data center co-location, fiber
transport as well as increasing distribution channels. These are
likely to return positive results in the near term.
Little Rock, Arkansas -based Windstream has been adding a
number of data centers, rendering greater customer satisfaction,
and investing in business channels. Windstream has opened three
data centers so far this year and is currently building another
one in Charlotte, NC. These units are being constructed to cope
with the growing demand for data centers and cloud-based services
from customers all over the nation.
The company continues to invest in long-term growth
initiatives such as fiber-to-the-tower (FTTT) deployment and
broadband network capability. With the rise in demand and
contract wins, Windstream is ramping up its FTTT construction
while with broadband expansion, the company is targeting to
enhance its coverage and increase speed in various areas.
Windstream plans to add 75,000 new broadband addressable lines
through further investments. These initiatives are expected to be
accretive to the company's revenues.
On the flip side, Windstream's carrier transport business
continues to remain under pressure as the demand for dedicated
circuits from telecom operators remain subdued. Furthermore,
softer sales from enterprise business can hurt the company's
growth in the near term.
Windstream's major risks also include access lines losses that
are affecting its wireline business revenues. The company
reported weak third-quarter 2013 financial results, with both the
top and the bottom line failing to beat the respective Zacks
Consensus Estimate. Loss of voice and digital subscribers along
with reduced intrastate access rates affected the results.
A highly leveraged balance sheet is another concern for the
company. These risks force us to maintain a neutral stance on the
While we remain sidelined on Windstream, Zacks Ranked #1
Hawaiian Telcom Holdco Inc.
Shenandoah Telecommunications Co.
) look attractive for the short term.
HAWAIIAN TELCOM (HCOM): Free Stock Analysis
SHENANDOAH TELE (SHEN): Free Stock Analysis
WINDSTREAM HLDG (WIN): Free Stock Analysis
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