Why Windstream Can Bounce Back After a Weak Quarter

Windstream (WIN, Financial) reported earnings of $0.03 per share in the second quarter 2014 that fell short of consensus estimates on earnings of $0.08 per share. The earnings were also below the earnings of $0.07 per share it had earned last year in the same quarter. However Windstream witnessed positive momentum in the consumer channels, continued growth in the business data and integrated service that guided its revenue for the second-quarter to remain flat at $1.51 billion as compared to $1.51 billion in the second quarter 2013, but it was higher than analysts’ estimates of $1.48 billion in revenue.

Looking ahead, the company has lowered its total revenue for the full year as it now expects revenue to fall about 2.5% this year which is still up nearly 1% over the revenue of 2013. Windstream forecasts total capital expenditure to remain between $800 and $850 million and its free cash flow is estimated to be in the range of $775 million to $885 million for the full year.

Investments

Windstream is strategically investing in fiber-to-the-tower and broadband networks with various costs saving initiatives that will drive its growth going forward. Windstream looks forward to enlarge its 10Meg internet service to more than 80% of its consumers across the region. It is also planning to provide 24Meg internet service to approximately 30% of its customer, which is more than double the number of customers by 2018. Moreover, the company has accelerated investment in its IP services and progress that should enhance its overall capabilities, delivering strong growth in the future.

In addition, Windstream has recently declared that it will be spinning off certain assets into an independent publically traded Real Estate Investment Trust or REIT that should assist the company to streamline its network investment effectively, while delivering improved services to its customer across the country and augmenting returns for the shareholders. This alteration will also enhance its competitive position and speed up its growth as REIT is expected to deliver strong cash flow, reassuring a good-looking dividend as it proposals the company an opportunity to grow and diversify in the future overtime.

Priorities to augment its growth ahead

Windstream is practicing various priorities to drive growth for its business revenue this year with some constructive changes across the board that will certainly improve its sales and service delivery in the upcoming quarters that could result in gaining strong traction in the markets for the company. First, Windstream has increased the targeted prices for its broadband networks that should additionally compliment positive revenue yield up in the remaining half of the year. Secondly, the company is strategically involved in combining the enterprise system as it brings all platforms such as sales management, billing, provisioning and other related system into one single and transparent platform to efficiently track mixed activities of enterprise customers. This will also assist the company in directing its sales efforts appropriately that could add value to its growth going forward.

This transformation should also assist the company in creating competitive edge against its peers such as AT&T Inc. (T), Sprint Corporation (S) and Verizon communications (VZ). This single interface for all of its enterprise customer function will lead to effectively oblige with the customized solutions with personalized services for its enterprise and SMB customers in the region. The last priority this year is to accelerate investment in the data and content businesses. Windstream is involved in enhancing its broadband networks, expanding its transition to IP networks and practicing various additional growth initiatives that will add value to its growth and improve its margins in the upcoming quarters.

Apart from these strategic moves, Windstream is also involved in the potential marketing programs and campaigning that should improve its productivity and increase its sales in the second half of the year. For Example, the company will benefit largely from its recently launched tool namely Sales Management platform, which is integrated with the advanced lead generation tool that should assist the sales team to maximize the opportunities and convert more sales. Besides, the company has been well received as its branding campaign is performing much better in the market, displaying its value proposition a unique capabilities and customized solutions.

Conclusion

Windstream is currently trading at the trailing P/E of 34.41 and forward P/E of 39.03 that shares cheap valuations for the stock that has potential growth in the future. Moreover, the company is fairly treated on the performance and wealth matrixes. Windstream has profit and operating profit yields of 3.02% and 15.75% respectively, while its ROE yield stands at the 22.61% for the trailing twelve months.

The company has total outstanding debt of $8.7 billion which is equitably mix by most measures and its operating cash flow remains at $1.49 billion with free cash flow of 1.02 billion. Also, the analysts have estimated CAGR of 52.60% for the next year reflects strong growth for the stock in short-run as average industry CAGR remains well below at 14.20% for the next year.