Tags: Windstream | winning | transition | WIN

Windstream Winning in Bid to Survive Telco Transition

By    |   Thursday, 21 June 2012 07:07 PM

Windstream (WIN) is a good example of the positive effects of U.S. telecom deregulation. Forced to compete, the company has moved quickly to acquire Internet-based telecommunications assets in a bid to grow its customer base and survive past the transition away from landline use. Analysts are bullish on the stock, one which pays a surprisingly high dividend.

Windstream provides advanced communications and technology solutions, including managed services and cloud computing, to businesses nationwide. In addition to business services, the company offers broadband, voice and video services to consumers, primarily in rural markets.

Windstream has operations in 48 states and the District of Columbia, a local and long-haul fiber network spanning approximately 115,000 miles, a business sales division and 21 data centers offering managed services and cloud computing.

“Our strategy has been and continues to be transformation of our business from a rural, consumer-focused voice and broadband provider into a national provider of advanced communications and technology solutions to businesses.” management said in a recent filing.

Windstream was created in July 2006 through the spinoff of Alltel Corporation's landline division and merger with Valor Communications. “At that time, we operated in just 16 states with less than 24,000 miles of fiber, a modest business sales organization, and only a handful of lower-tier data centers,” WIN management said.

In early 2010, Windstream acquired NuVox, a regional business services provider based in Greenville, S.C., adding a broad portfolio of Internet protocol (IP) based services and increasing its sales force.”This acquisition marked an important step in positioning the company to better serve business customers,” WIN management explains.

Additional M&A followed, including the move to acquire PAETEC Holding Corp., a national business services provider with more than 36,000 miles of fiber and seven data centers, as well as an experienced sales force focused on serving enterprise-level clients.

“The PAETEC transaction significantly enhanced our capabilities in strategic growth areas, including IP based services, cloud computing and managed services, advancing our strategy to drive top-line revenue growth by expanding our focus on business and fiber transport services,” management said.

“With the addition of PAETEC, we expect approximately 69 percent our 2012 revenues to be generated by business and consumer broadband.”

Windstream has a market cap of $5.81 billion in a sector, telecom services, where the average company size is $13.56 billion. Its trailing 12-month P/E ratio is 25.31.

Its projected earnings per share growth for the coming year is 11.32 percent, compared to a sector average of 9.03 percent.

Smooth integration

Wall Street is generally positive on WIN, with buy or outperform calls from Stifel Nicolaus, Raymond James, and Standard & Poor’s Equity Research.

“Even with increased capital spending to support broadband and other initiatives, we view WIN's dividend, recently yielding an above average 10 percent, as secure. WIN's access line base has been more stable than that of peers, and business demand has been strong despite a sluggish economy,” S&P analysts wrote in mid-May, setting the target price at $13.

“We believe recent acquisitions have been integrated smoothly, although there are risks as WIN works to align the PAETEC assets during 2012 and suspends certain wholesale operations. With our view of WIN's stronger fundamentals than many peers, we see the shares as undervalued.”

Windstream next reports on Aug. 9.

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Thursday, 21 June 2012 07:07 PM
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