CenturyLink Is 'Poorly Positioned,' Guggenheim Says In Downgrade

Communications provider to global enterprise customers Centurylink Inc CTL is "poorly positioned" within the changing telecommunications market, and the stock should be sold by investors, according to Guggenheim.

The Analyst

Guggenheim Partners' Mike McCormack downgraded CenturyLink from Neutral to Sell with a price target lowered from $17 to $11.

The Thesis

The bearish case for CenturyLink is based on concerning growth rates in multiple customer segments that were seen in the past few quarters, McCormack said in the Thursday downgrade note.

For example, excluding the impact of ASC 606, the consumer segment showed a 5.4-percent revenue drop due to multiple pressures from legacy losses and broadband losses, the analyst said.

Medium and small business revenue dipped 4.4 percent in the third quarter after revenue fell 2.6 percent in the second quarter, McCormack said. The company noted losses of legacy voice services, but the pressures within the segment will intensify moving forward, as Cable MSOs are gaining market share at the expense of companies like CenturyLink, he said.

Revenue in the enterprise segment has been under notable pressure and fell 2.3 percent in Q3, the analyst said.

While CenturyLink highlighted lower CPE revenue and the termination of a government contract, the bigger picture is the continued mix shift of legacy services to IP/ethernet, and pricing erosion will remain a problem moving forward, McCormack said.

International and global accounts revenue fell 3.4 percent in the recent quarter due to "fairly consistent and long-lasting" foreign exchange pressures, and the wholesale and indirect segment continues to suffer from an ongoing wireless substation impact, according to Guggenheim.

Price Action

CenturyLink shares were down 3.65 percent at $14.66 at the time of publication Wednesday.

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