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Here's Why You Should Dump CenturyLink from Your Portfolio

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On Aug 25, one of the leading regional wireline service providers in the United States, CenturyLink Inc. , was downgraded to a Zacks Rank #5 (Strong Sell).

Shares of the company have underperformed the industry’s gain in the last month. The stock price decreased 12.3%, as against the industry’s gain of 2.6% in the same period.

Meanwhile, the company continues to face depreciation in its access lines on an organic basis. As a result, CenturyLink’s core local phone business has slowed down significantly.

As of Jun 30, 2017, total access lines were 10.733 million, down 5.95% year over year. This decline was mainly due to the substitution of traditional wireline telephone services by wireless and other competitive offerings, and lower long-distance minutes of use.

Additionally, decrease in subsidy payments by the Federal Universal Service Fund, tough competition, federal regulations and labor union issues remain headwinds.

Notably, the dynamics of the communication industry are significantly governed by technological innovations. Therefore, changes in technology compel large investments that can dilute cash flow. This could substantially impact its ability to meet debts and other obligations. Alternatively, if CenturyLink fails to adopt new technology or network upgrades, it might result in greater subscriber loss to larger competitors, going forward.

CenturyLink’s cash and liquidity position seems to be a major concern for the company. In fact, accumulating high debt levels and decreasing cash flows may pose threat to the company's margins in the near term.

Stocks to Consider

Investors interested in the broader Computer and Technology sector may consider better-ranked stocks like Arista Networks, Inc. (ANET - Free Report) , America Movil SAB (AMX - Free Report) and I.D. Systems, Inc. . While Arista Networks currently sports a Zacks Rank #1 (Strong Buy), America Movil and I.D. Systems carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Arista Networks has expected Earnings per Share (EPS) growth rate of 21.6% for the last three to five years. 

America Movil has expected EPS growth rate of 55.87% for the last three to five years.

I.D. Systems has expected EPS growth rate of 30% for the same time frame.

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