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On May 31, we maintained our Neutral recommendation on Cincinnati Bell (CBB - Analyst Report), owing to the strength in both wireless and wireline business units, and a solid financial position. However, the company faces certain headwinds that will likely slow down its growth momentum. The regional communication service provider holds a Zacks Rank #3 (Hold).

Why Maintained?

Cincinnati Bell is characterized by a well-known brand, strong reputation for offering high-quality services including customized blends of local and long-distance phone service, broadband Internet access as well as its well-designed marketing program. The company’s distribution channels with stores located at affordable areas lend high support to the functions of the wireless and wireline segments.

Cincinnati Bell displays immense prospects in the wireline operations, especially Fioptics products. During the first quarter, the company introduced Fioptics products to about 15,000 homes and businesses, reaching a total of 220,000 units. In 2013, the company targets to deploy Fioptics to 72,000 additional premises, with an investment of nearly $70 million to $75 million. We also appreciate the company’s focus on upgrading its network with the help of software improvements and installation of additional fiber optic cables.

The company is also concentrating on developing its IT Services and Hardware division with the aim to reap in more businesses from the segment. A team of efficient and highly skilled IT professionals offers a wide-array of services to clients at competitive rates.

However, we stay on the sidelines considering the erosion in local access lines, fierce competition and rising maintenance expenses that pose major roadblocks in the company’s growth path. The company’s outlook also remains clouded by market saturation, legal issues and the lingering effects of the spin-off of Data Center Colocation into a separate entity.

The second and third quarters of 2013 have the Zacks Consensus Estimate for earnings pegged at 2 cents and one cent per share, respectively. This reflects a year-over-year decline of 68.6% in the next quarter and growth of 40.0% in the third quarter.

Other Stocks

Companies operating within the telecom sector that are worth taking notice of are Shenandoah Telecommunications Co. (SHEN - Snapshot Report), Telefonica Brasil, S.A. (VIV - Analyst Report) and TELUS Corporation (TU - Analyst Report). While the former holds a Zacks Rank #1 (Strong Buy), the latter two stocks carry Zacks Rank #2 (Buy).

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