CenturyLink, Inc. (NYSE:CTL) is a telecommunications company that provides a wide range of services including: network access, private lines, public access, broadband data, managed hosting, and wireless and video services. The company is facing a tough time regaining its share price, which was recently lost due to weak financial results for the fourth quarter of 2012. There are a number of factors influencing the company's financial and market performance.
CTL's Financial Performance
CenturyLink witnessed a steep decline in its share price in February following lower than expected results for the fourth quarter. CTL reported net income per share of $0.67, which was significantly higher than the net income per share in the same quarter last year, which was $0.55; however, it was slightly lower than the analysts' estimate, which stood at $0.68. The company also announced a dividend cut along with this financial information. Following this financial information and announcement for dividend cut, the stock price of the company fell by 9.42% to $32.27, which is now CTL's 52-week low.
The revenue for the latest financial quarter was $4.3 billion, being slightly lower than the revenue in the same quarter last year, which was $4.4 billion. The declining financial performance of the company is due to the declining business legacies. There is increased competition, and due to technological advancements in the industry, CTL faces the threat of falling behind.
The debt to equity ratio of CTL is 1.07, which is significantly higher than the industry average. This ratio suggests that the company is in need of better strategic management. The quick ratio is 0.47, which indicates that the company is unable to address its short-term obligations.
Competition in the Industry
AT&T has a more diversified business and it operates in four major segments i.e. Wireless, Wireline, Advertising Solutions, and Other. A significant proportion of its business activities directly overlap with those of CTL. Despite the diversity in business, AT&T has a weak financial performance due to poor performance in the wireless segment. The company reported a profit margin of -11.60% for the fourth quarter of 2012. However, CTL's profit margin for the same quarter was 5.08%.
Verizon also has more diversified business operations when compared with CTL. Its two major business segments are: Wireless and Wireline. The wireline services of Verizon directly overlap with those provided by CTL. Similar to AT&T, Verizon too has a weaker financial performance when compared with CTL. For the fourth quarter of 2012, Verizon reported a profit margin of -6.41%. This is also due to the fierce competition in the wireless industry.
CenturyLink recently announced a steep cut in quarterly dividend from $0.725 per share to 0.54 per share i.e. 25% decrease. The reason behind the cut in dividend was the company's shift in strategy. CTL intends to focus on investing in growth areas instead of staying put in the declining legacy businesses. The company has sped up its investments and acquisitions in an attempt to strengthen its growth areas. It also intends to re-invest its profits in company operations.
CTL hit its 52-week low in February 2013 and it has been struggling with its market performance since then. The company's shares are being traded within the range of $34.25 and $34.47, while the 52-week range of the share price is between $32.05 and $43.43. The steep decline in the share price can be directly attributable to the declining financial performance of the company. The following chart represents the company's market performance over the past year.
It can be seen from the chart that the share price witnessed a steep decline in February, and it has been struggling with its market value since then.
After analysis of the financial and market performance of the company, in my opinion, investors should hold their investments in CTL. I believe that the current market performance of the company is very unpredictable, and the latest financial results also indicate a declining trend. However, since CTL is focusing on growth areas, it can be expected that its financial performance will strengthen in the prospective periods.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.