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Is Windstream A Good Investment?

April 06, 2014 | About:

Windstream (NASDAQ:WIN) is sailing through troubled waters for quite some time. Its earnings are expected to decline at a CAGR of about 20% over the next five years. This decline could be a setback for the company as it could hurt the investor’s sentiments due to reduced dividends. To top that it has introduced new shares in the market, which will further put a dent in the dividends.

Getting better

Windstream is adopting various methods to tackle this, like it has cut its capital expenditures. But it will be a matter of time whether this initiative brings any fruit. Let us see in detail what are the strategies the company might adopt to improve its situation.

In the last five years its earnings have dropped at a CAGR of around 18%. The stock has declined around 24% in the past one year, and as already mentioned its dividends will also be negatively affected.

Way ahead

However all is not lost for Windstream. Analysts expect it to investment in broadband network, proper expense management, and a capital-efficient business model in the future. This optimism is also backed by the company’s new service offerings to businesses such as VoIP services, data bundles, cloud and managed services; data center co-location, fiber transport, as well as increasing distribution channels.

Windstream has added data centers to support its cloud-based services, which will provide utmost customer satisfaction. Apart from this it is also investing in different business channels. The company continues invest aggressively in fiber-to-the-tower deployment and broadband network capability.

Windstream aims at expanding its business by enhancing its broadband coverage and surfing speed along with ramping up its FTTT construction. It expects to add 75,000 new broadband addressable lines, which will boost its revenues. The expansion also incorporates investing in business services, data services, internet services, and consumer broadband as an add-on to its land-line telephone services.

As a part of its restructuring strategy it has planned to lay off 400 employees, which will help to revamp its cash flows. The move is aimed at improving its operational efficiency and help Windstream save about $20 million per year.

Currently Windstream yields 12.7%, but looking forward its earnings are expected to decline and might not be able to sustain the dividend. Windstream has a payout ratio of 526%, and as mentioned earlier, earnings are expected to decline at a whooping 20% per annum for the next five years. The cash reserve of the company is also low amounting to $73.4 million, while it has a huge debt of $8.93 billion, which is more than its market capitalization.

To keep its dividend intact, Windstream must refrain from offering new shares. The company should also focus to decrease its pay out ratio by reducing capital expenditure or by keeping it under control. But investor’s interest cannot be considered at the stake of company growth. Windstream has several growth-oriented moves in its pipeline and these might require substantial investments in the future.


Looking forward Windstream’s prospects does not seem to be good. Even a good earnings report won’t be sufficient to cheer the investors. Considering all the above factors investors should avoid this stock for now until the company shows clear signs of turnaround.

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