CenturyTel (CTL)

We downgrade our rating to Sell for CenturyTel (CTL - Analyst Report) based on valuation, after assessing the company's guidance for second quarter 2009 that was below our expectations. We also believe that the Embarq merger planned by CTL, scheduled to be completed in mid-2009, may be more challenging in terms of integration and deriving cost savings synergies.

Meaningful merger-related synergies are not likely before 2011, in our opinion, offering limited opportunity for near-term operational improvement. While we expect growth in broadband Internet to remain robust, the near-term outlook dictated by management's financial guidance is weak as declines in traditional voice and network access business offset gains in broadband Internet.

We also remain concerned with a highly-leveraged balance sheet that is likely to be further burdened with the assumption of approximately $5.7 billion in Embarq debt upon deal closure.