Mason Hawkins' (Trades, Portfolio) Southeastern Asset Management disclosed this week it established a 6.7% stake in CenturyLink Inc. (CTL, Financial) on Dec. 8.
The firm manages the Longleaf Partners Funds. Managing a portfolio of 28 holdings, Southeastern seeks to achieve superior long-term performance by investing in companies with strong balance sheets and good management teams that are trading at a discount. The portfolio is largely composed of securities in the consumer cyclical and industrials sectors. In 2016, the Longleaf Partners Fund returned 20.72%, outperforming the S&P 500’s 11.96% return.
Southeastern invested in 71.6 million shares of the company for an average price of $14.67 per share, giving it 11.05% portfolio space.
The Louisiana-based telecommunications company has a market cap of $17.41 billion; its shares were trading around $16.29 on Wednesday with a price-earnings ratio of 28.24, a price-book ratio of 0.70 and a price-sales ratio of 0.53. GuruFocus estimates the stock has lost 34% year to date.
According to the Peter Lynch chart below, the stock is trading above its fair value.
GuruFocus ranked CenturyLink’s financial strength 4 of 10 and its profitability and growth 6 of 10. The company’s trailing dividend yield is 13.60% and its forward dividend yield is 14.72%. The dividend payout ratio is 372%.
For the third quarter, the company posted adjusted EPS of 42 cents on $4.03 million in revenue, missing expectations of 45 cents on $4.06 million. Both figures declined from the prior-year quarter.
The trend in CenturyLink’s revenue growth over the past decade is illustrated in the graph below.
In November, CenturyLink completed its acquisition of Level 3 Communications Inc. (LVLT, Financial), which was announced in October of 2016.
On Dec. 4, the company disclosed it won a $1.5 million communications contract with Peterson Air Force Base in Colorado Springs, Colorado. In addition to providing Ethernet circuits and private line services, CenturyLink will support the NORAD Tracks Santa program. Then, on Dec. 11, the company announced it had entered a five-year contract with the Commonwealth of Pennsylvania to provide data networking products to various entities in cooperation with Comcast Business.
In addition, CenturyLink published the findings of a special committee investigation into its policies and practices in relation to its sales, services and billing on Dec. 7. The investigation was launched in June by independent board members after a former employee accused the company of sales-related misconduct. The investigation found no evidence of fraudulent billing or other misconduct by management.
Of the 14 gurus invested in CenturyLink, Jeremy Grantham (Trades, Portfolio) has the largest position with 0.37% of outstanding shares. During the third quarter, Joel Greenblatt (Trades, Portfolio), George Soros (Trades, Portfolio), Ray Dalio (Trades, Portfolio), Leucadia National (Trades, Portfolio) and Mario Gabelli (Trades, Portfolio) established holdings.
Disclosure: I do not own any stocks mentioned.
