On Sep 6, 2013 we maintained our Neutral recommendation on one of the largest U.S. rural local exchange carriers (RLEC) Windstream Holdings Inc. (WIN - Analyst Report) . 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 model.
However, a competitive market scenario, and soft enterprise and carrier transport businesses remain concerns. The company currently carries a Zacks Rank #3 (Hold).
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, AR-based Windstream has adopted a number of measures to broaden its business horizon. The company has been adding a number of data centers, employing efficient sales people to boost the sales figure and render greater customer satisfaction, and investing in business channel. Windstream has opened three data centers so far this year and is currently building another one in Charlotte, NC.
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 constructions while with broadband expansion, the company is targeting to enhance its coverage and increase speed in various areas. These initiatives are expected to bring incremental revenue for the company.
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 revenues from the wireline business unit. The company reported weak second 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 rural carrier.
While remain sidelined on Windstream, Zacks Ranked #2 (Buy) BT Group Plc. (BT - Snapshot Report) , Hawaiian Telecom Holdco Inc. and Telekom Austria AG (TKAGY - Snapshot Report) look attractive for the short term.