Seeking Alpha
Profile| Send Message|
( followers)  

Windstream (NASDAQ:WIN) has announced that it will now include the Avaya Aura Suite solution to its cloud-based network. The development will expand Windstream's unified communication service. In this article, I want to show how the growth in the unified communications sector will enable Windstream to increase its revenues by 1%. This factor will help Windstream to improve its price multiples.

How will Windstream's fundamentals show an improvement? The unified communications sector is predicted to show an expansion in its revenues. According to a research firm, Wainhouse Research, the unified communications sector will grow to $13.4 billion by the end of the year. As a leader in the sector, Windstream will benefit from the development with its new initiative. This will increase the revenues of the company's divisions.

Financial

Windstream sales growth is inevitable. Its unified communications service has already improved the company. In the first quarter, business service revenues were $914 million, a 2% increase compared to the same period in the year prior. The consumer broadband service revenues were $117 million, a 5% increase on a year-on-year basis. The data and integrated service revenues were $400 million, an increase of 8%.

In the fourth quarter, Windstream's business service revenues were $917 million, a 3% increase on a year-on-year basis. Its consumer broadband service revenues were $116 million, a 5% increase on a year-on-year basis. The data and integrated service revenues were $398 million, an increase of 9.5% compared to the same period in the previous year.

Windstream and Unified Communication Service

Windstream has introduced many solutions to improve its margins with the unified communications service. Its Windstream IP Simple solution leverages the Allworx business phone system to improve VoIP and data communications. Windstream and ShoreTell recently configured a unified communications solution for POMCO Group. Windstream has also expanded its unified communications solutions to over 100 cities within its service area.

The company's new initiative will enable its customers to have an access to its advanced unified communication and its messaging applications. "With Windstream's vast experience as one of the nation's largest Avaya channel partners, coast-to-coast network footprint and a growing number of enterprise-class data centers, we are able to offer customers of all sizes unified service capabilities, helping them become more productive and competitive - all without the upfront capital costs of a traditional unified service solution," said Tim Whelehan, vice president of business development for Windstream.

Windstream is introducing the initiative to meet its 2013 revenue expectations. However, the company is fortunate that the worldwide spending on the unified communications sector is experiencing an expansion. Windstream's initiative will enable it to compete with its rivals.

Looking at Windstream's revenues in the recent reports, we notice the divisions using the unified communication service showed a year-on-year improvement. It is clear that the segment has improved Windstream's revenues on a yearly basis. So it can be said that it is operating efficiently.

With a price to sales of 0.79, Windstream is trading cheaply, especially given that it has a gross margin of 54.37%. The new initiative will increase the overall Windstream revenues and improve its earnings per share.

Competition

Witn an EPS of 0.27, compared with 1.29 for AT&T (NYSE:T), -1.37 for Sprint (NYSE:S), and 0.40 for Verizon (NYSE:VZ), and a price to sales of 0.79, compared with 1.51 for AT&T, 0.53 for Sprint, and 1.22 for Verizon, Windstream does appear to be operating at a competitive level. Sprint, Verizon, and AT&T have a line of solutions to compete with Windstream in the unified communications sector. However,Windstream's new initiative will optimize its performance and enable it to positively respond to the competition.

Conclusion

There are risks involved with buying a Windstream stock. Its first quarter revenues were $1.5 billion, a 2% decline on a year-on-year basis. Windstream also has to cope with a debt of $9.70 billion. However, based on the success of Windstream's unified communication solutions and the growth prospects in the sector, we can say Windstream will increase its revenues with the Avaya solutions. Looking at the company's price multiples, we still say Windstream is a good buy on a long-term basis.

Source: Will Windstream Prosper With The Avaya Aura?