Windstream Cuts 400 Jobs for Higher Profits - Analyst Blog

Telecommunication service provider Windstream Holdings, Inc. (WIN) announced that it will eliminate 400 job positions by Mar 3, representing 3% of its total workforce. The company, which presently has 13,500 employees, said on Friday that 175 of the affected workers agreed on buyout.

While the company estimates expense related to severance packages of around $9–$10 million, it expects the reduction in workforce to enhance profitability and support operational efficiency target of $20 million per year.

While the stock moved up 3 cents up from its opening to reach $7.95 in the last trading session, it eventually closed 6 cents below the opening at $7.86. Last quarter, the company delivered an 11.11% negative earnings surprise.

The decline in share price might again be seen after the expected release of the company's fourth quarter earnings on Feb 27. Currently, the Zacks Consensus Estimate is pegged at 9 cents, representing an annualized decline of 18.18%.

Apart from improving its financial position through initiatves like workforce reduction, the company continues to invest in long-term growth initiatives such as fiber-to-the-tower (FTTT) deployment and broadband network capability. With the rise in demand and contract wins, Windstream is ramping up its FTTT construction while with broadband expansion, the company is targeting to enhance its coverage and increase speed in various areas.

Windstream plans to add 75,000 new broadband addressable lines through further investments. These initiatives are expected to be accretive to the company's revenues as well as offer competitive advantage over players like CenturyLink, Inc. (CTL) and Leap Wireless International Inc. (LEAP).

On the flip side, Windstream's carrier transport business continues to remain under pressure as the demand for dedicated circuits from telecom operators remain subdued. Furthermore, softer sales from enterprise business can hurt the company's growth in the near term.

Windstream's major risks also include access lines losses that are affecting its wireline business revenues. The company reported weak third-quarter 2013 financial results, with both the top and the bottom lines failing to beat the respective Zacks Consensus Estimate. Loss of voice and digital subscribers along with reduced intrastate access rates affected the results.

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Windstream currently has a Zacks Rank #3 (Hold).

Another stock worth considering includes Meru Networks, Inc. (MERU), which has a Zacks Rank #2 (Buy).