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On Apr 3, we maintained our Neutral recommendation on Windstream Corporation (WIN - Analyst Report), reflecting a lucrative bundle of service offerings, an expanding customer base and various strategic measures. However, certain risk factors will limit the company’s growth momentum in the near to mid term.

Why Maintained?

Looking ahead, we believe that 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 will lead to positive results. Little Rock, AR-based Windstream has also revealed its plan to expand its Carrier Switched Ethernet services across the nation.

The company is expected to register high profits in the coming quarters on the back of its strong foothold across the nation plus strategic growth across segments and a capital efficient business model. The company also targets to trim its capital spending in 2013, which will result in lower cash interest.

Planned investment for fiber-to-the-tower deployment, data center expansion and enhancement of broadband network capability will support incremental revenue. Additionally, Windstream has implemented a number of measures to expand its business scale that includes adding a number of data centers, employing efficient sales people to boost the sales figure and render greater customer satisfaction, as well as focusing on channel business.

However, the company’s performance in the near term will likely be under pressure owing to competitive pressure from other players like Frontier Communications (FTR - Analyst Report) and Alaska Communications Systems (ALSK - Snapshot Report), constant upgrades in the technological scenario as well as continued access-line erosion. Other headwinds for Windstream are various federal regulations and issues as well as a highly leveraged balance sheet.

For both the first and second quarters of 2013, the Zacks Consensus Estimates for earnings are 11 cents, indicating a respective year-over-year decline of 18.9% and 9.2%.

Other Stocks

A stock within the telecom industry worth considering is AT&T Inc. (T - Analyst Report), which presently carries a Zacks Rank #2 (Buy).

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