Citi Defines Windstream 'Bull Case' After Meeting With Management
In a report published Monday, Citi analyst Michael Rollins maintained a Buy rating on Windstream Holdings, Inc. (NASDAQ: WIN), with a price target of $15, after meeting with CEO Tony Thomas and Vice President of Capital Markets & IR, Mary Michaels.
The management appears to be optimistic about the opportunity to improve the company's financial performance. "We believe a bull case scenario for Windstream has emerged for the company to modestly grow revenue from its enterprise CLEC & in-region SMB segments, improve OIBDA with some incremental cost cutting, and eventually generate FCF of at least $2/share," Rollins said.
This may appear to be "quite optimistic," especially against the backdrop of the recent financial metrics and capital intensity. "We pieced together a model based on management’s aspirations for segment performance and found the company can significantly reduce the pace of revenue and OIBDA erosion heading into 2016 and then create a path for better financial performance over time," Rollins wrote.
In the report Citi noted the key takeaways from the meetings as:
- Change in reporting structure and greater focus on contribution margins - This would alter the company's "selling behavior" away from its previous focus on lower margin deals to boost revenue prospects
- Network investments include increased spend of $130 million from CAF-I and elevated IT, which should decline in 2016
- Easing pressures on carrier revenue in the second half of this year, with legacy copper backhaul likely approaching a trough
- Lower-than-expected near-term cash taxes and pension, although this may be somewhat offset by higher cash interest
- The company being "open to asset monetization" and M&A
"Meanwhile, we believe the share price has underperformed partly from a combination of post-spin volatility, weak peer-group performance, & pending removal from the S&P MidCap 400 index," Rollins added.
Latest Ratings for WIN
|Oct 2016||Cowen & Co.||Initiates Coverage On||Market Perform|
|Aug 2016||Raymond James||Downgrades||Market Perform||Underperform|
© 2016 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.