Updated Research Report on CenturyLink - Analyst Blog

On Mar 14, 2014, we issued an updated research report on CenturyLink Inc. CTL. The company posted mixed results in fourth quarter 2014. While earnings missed the Zacks Consensus Estimate, revenues were ahead of our expectations.

The Zacks Consensus Estimate for CenturyLink's first-quarter earnings is pegged at 61 cents, representing a decline of 19.38% on an annualised basis.

CenturyLink redesigned its operating segments to strengthen its grip over the market as well as remain fully committed to wholesale, consumer and hosting customers. The company, over the last few years, has been witnessing a slower rate of revenue decline.

In 2013, the company's core revenue trend continued to improve from a 2.3% annual decline in 2012 to 1.3%. For 2014, the company expects this trend to continue improving core revenues from -1.2% to flat buoyed by strategic revenues, growth in broadband and Prism TV as well as high bandwidth data services and hosting services.

The primary factors contributing to this include long-standing ties with clients by bundling integrated services, launch of new and attractive services, consistent technology upgrades, infrastructure enhancement, better usage of networks and profitable collaborations. CenturyLink is also benefiting from its continuous investments in Product portfolio, which places it as an integrated end-to-end solution provider to various businesses.

Centurylink's Prism TV service is performing well and is expected to compensate for the revenue loss due to reduction of single play voice customers. CenturyLink also remains committed to take Prism TV service (available to 69,000 customers) to additional markets and add subscribers.

However, the company continues to experience a decline in subsidy payments received under the Federal Universal Service Fund or USF (provides telecom funding for lower income and rural consumer coverage), representing an important source of its network access revenue. The FCC had reformed its USF and intercarrier compensation (fees that carriers pay each other when they connect telephone calls) rules.

The FCC highlighted its efforts to expand high-speed Internet services to rural areas over the next six years (2012–2018). It will reduce access and compensation rates charged by CenturyLink over the next six years, resulting in significant decline in the company's access revenues.

CenturyLink's core local phone business has slowed significantly, which is evident from the consistent decline in access lines on an organic basis. This is primarily due to the substitution of traditional wireline telephone services by wireless and other competitive offerings and lower long distance minutes of use.In addition to large telecommunication providers like AT&T Inc. T and Verizon Communications Inc. VZ, the company faces intense competition from cable TV operators and other wireless companies which aggressively offer traditional voice service over their networks. Improvement in the quality of VoIP services has enabled cable TV, Internet, and telephone companies to offer services at attractive price points.

CenturyLink currently has a Zacks Rank #3 (Hold)

Stocks That Warrant a Look

A better-ranked stock in this sector includes Inteliquent, Inc. IQNT, which has a Zacks Rank #2 (Buy).