Updated Research Report on Windstream - Analyst Blog

On Jun 4, 2014, we issued an updated research report on U.S. rural local exchange carrier Windstream Holdings Inc. WIN. The company is expected to benefit from its investments in fiber-to-the tower and broadband networks along with proper cost management. However, competitive threats, soft carrier transport business situation and a highly leveraged balance sheet raise concerns.

Windstream remains focused on improving sales, and implementing cost-cutting and planned pricing initiatives, which are expected to drive revenues and margins, going forward. Investments made in data center and fiber expansion will create further impetus for revenue growth in 2014.  

The company is also combining its enterprise systems by bringing the billing, provisioning and sales management systems under a single interface. This initiative will lend a competitive advantage to Windstream, allowing it to serve its customers better and in turn, augment business growth.

This Zacks Rank #3 (Hold) company continues to invest in long-term revenue growth initiatives such as fiber-to-the-tower (FTTT) deployment and broadband network capability. With rise in demand and contract wins, Windstream is ramping up its FTTT construction and has so far built 4,600 towers. With broadband expansion, Windstream has reached out to 27,000 new homes and expects to complete the stimulus project this year by bringing broadband services to 75,000 new homes. Improving capacity and speed along with network expansion will drive the company's unit and revenue growth further.

However, the company reported weak first-quarter 2014 results with both the top and the bottom line missing the respective Zacks Consensus Estimate and deteriorating from the year-ago levels. The company also remains stressed with losses in the wholesale business and expects it to improve, albeit at a slower pace.

Windstream's carrier transport business continues to be under pressure as telecom operators demand smaller amounts of copper-based dedicated circuits to transfer data traffic between different points within their network. Further, the company still has some integration and restructuring expenses left, which can negatively impact its operating cash flow.

Key Picks from the Sector

While we remain on the sidelines regarding Windstream at present, Zacks Rank #2 (Buy) stocks like Kyocera Corp. KYO, Cbeyond Inc. CBEY and Level 3 Communications Inc. LVLT look attractive for the short term.