Back to top

Analyst Blog

Zacks Equity Research

Windstream's TV Services & Tie-Ups Bode Well, Risks Stay

ELNK CALX T CTL WIN

Trades from $3

On Nov 17, we issued an updated research report on Windstream Holdings, Inc. (WIN - Free Report) , a telecommunications and data services firm in the U.S. with third quarter 2016 earnings report. The company is actively pursuing new deals and alliances and is coming up with innovative business schemes such as the $250 million Project Excel and the recent Kinetic IPTV (Internet Protocol television) services to expand its business and gain customers. The company is striving to reverse the broadband subscriber decline trend experienced in the third quarter of 2016.

Growth Prospects

Windstream is well positioned for long-term growth based on its investments in fiber-to-the tower, broadband networks and cost management. The company’s new cloud-to-cloud disaster recovery management solutions replicate mission-critical virtual servers and data to provide an alternative system for cloud-based disaster recovery system to customers. Windstream also strengthened its existing tie-up with Cologix through the construction of two new PoPs – in Dallas, TX and Columbus, OH. Also, expansion of its metro fibre network business in Atlanta, Minneapolis and Chicago bodes well. The company aims to deliver broadband speeds of up to 1 gigabit per second (Gbps) with the help of the merged Calix Inc.’s (CALX - Free Report) E3-16F G.fast sealed DPU nodes and GigaFamily products. Windstream’s strategic moves to boost sales, cut costs and pricing plans should drive revenues and margins.

In Sep 2016, Windstream announced that its $250 million Project Excel program launched in 2015 is in progress and is expected to close by the end of 2016. This project was started to enhance the network provision of the company by installing VDSL2 (Very-high-bit-rate digital subscriber line 2) network equipment and gain more customers by 2017 through the delivery of higher broadband speeds of upto 100 Mbps.

Recent Events

Recently, Windstream launched next-generation television service – Kinetic – in 13 North Carolina communities. The communities are Albemarle, Badin, China Grove, Concord, Harrisburg, Hemby Bridge, Indian Trail, Kannapolis, Matthews, Mooresville, Mt. Pleasant, New London and Oakboro where the company offers 100% fiber-backed network to more than 50,000 residents.

In the beginning of Nov 2016, Windstream announced a merger with rival, EarthLink Holdings Corp. (ELNK - Free Report) for a total value of $1.1 billion. The companies reached an all-stock deal where each shareholder of EarthLink will receive 0.818 shares of Windstream. Notably, Windstream will issue about 93 million shares for the deal which are valued at $673 million, while the total value including debt will be $1.1 billion. The transaction is anticipated to close in the first half of 2017. Shareholders of Windstream will control 51% of the combined company while the remaining portion will be owned by EarthLink shareholders.

However, amidst the present competitive scenario, we believe that the combined entity will enjoy benefits of increased scale which will help it brave competition from the likes of CenturyLink Inc. (CTL - Free Report) and AT&T Inc. (T - Free Report) . Moreover, the merged entity is expected to save around $125 million in operating and capital expenses annually.

Risks

On the flip side, Windstream has been losing access lines due to pricing pressure and fierce competition. The company also remains under pressure with losses in the wholesale business. The implementation of stringent regulatory measures by the FCC compels companies like Windstream to cut rates for customers. Further, continuous investments in technology and network upgrades may dent earnings. Windstream’s highly leveraged balance sheet is another major concern.

Windstream currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Confidential from Zacks

Beyond this Analyst Blog, would you like to see Zacks' best recommendations that are not available to the public? Our Executive VP, Steve Reitmeister, knows when key trades are about to be triggered and which of our experts has the hottest hand. Click to see them now>>