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The stories are everywhere: "Windstream (NASDAQ:WIN) delivers revenue decrease" or "Windstream records earnings loss." Let's think for a moment, are the numbers all bad, are analysts correct? Does Windstream have future possibilities? Looking beyond the stories, the present situation with Windstream may provide a great buying opportunity.

Some analysis, please

Revenues for the last quarter fell 2% year-on-year. The company's operating income fell 3% compared to the prior year. Its net income fell 22% year-on-year.

Still, Windstream delivered an increase of 2% in business service revenues. It grew 6% in consumer broadband service revenues. Its data and integrated services revenues delivered an increase of 8%. Its carrier service revenue showed an increase of 1% compared to the previous year.

Most companies will admire this performance. Overall consumer service revenues were the weak spot. They fell 3% year-on-year. However, data service revenues did well. Another cause for the negative sentiment around Windstream is the continued decline in its wholesale business during the last quarter.

Despite the revenue decline, Windstream has positioned itself for superior growth rates. The company opened data centers in Chicago, Nashville, Tenn, and Raleigh-Durham N.C. this year. It sounds logical to assume they have not yet reached optimum sales generation. The story could be different in the next quarter.

Windstream also announced it is exploring the formation of a company to become its publicly traded parent company. The ownership design would enhance Windstream's corporate structure and strengthen its credit profile.

There are some issues that will form obstacles going forward. For instance, Windstream has lower switched access revenues from declining consumer voice lines. But, on the other hand, Windstream is reaching the next quarter with strong growth in integrated voice and data services. This sets the stage for a positive third quarter.

Hedge Fund

Investors who mimic the actions of hedge fund managers and insiders have the possibility of achieving good returns. Israel Englander has been a shareholder in Windstream for some time. Another hedge fund manager, David Shaw, increased his holdings by 600% in the last quarter. Matthew Hulsizer increased his stakes by 200%.

In the past year, many insiders have displayed optimism in Windstream. While the company has only 10 insider sales, it has 95 insider purchases. The most bullish insiders are directors of the company such as Jeffrey Gardner, Samuel Beall and Carol Armitage.

Valuation

Windstream has its dividend yield for the year at 12.20%. This is higher than competitors like AT&T (NYSE:T) at 5.20%, Verizon (NYSE:VZ) at 4.20%, and none for Sprint (NYSE:S). Also, Windstream has an operating margin of 15.30%. All three of the company's primary competitors have lower operation margins: AT&T (9.52%), Verizon (13.42%), and Sprint (2.50%).

Interestingly enough, the fundamental analysis shows that some investors are underestimating Windstream. By looking at its profit margin (2.44%), we can see it is higher when compared to 1.32% for Verizon and -12.22% for Sprint. Only AT&T at 5.73% is higher.

Now bears may argue that Windstream could simply have been lucky with its price multiples, but this is simply not the case. Specifically, the current return equity is 13.02%. This is greater than 7.98% for AT&T, - 60.94% Sprint, and 13.99% for Verizon.

When looking at Windstream's price-to-earnings ratio (33.99), we can see a deep discount when compared to Verizon at 89.90.

Analysis

It is no wonder why the company has mixed sentiments among analysts. While UBS has downgraded the stock, Deutsche Bank initiated a hold rating on a price target of $8.00 a share. A swot analysis sees that the company has growth potentials in the VoIP sector, telecommunications services markets, and the mobile broadband sector.

Macroeconomic Environment

It is also worth considering the state of Windstream's surrounding macroeconomic environment. The future of the telecommunications industry is bright. Investment firm Veronis Suhler Stevenson expects the U.S. communications industry to see a compound annual growth rate of 5.2 percent over the next few years. Additionally, Windstream should enjoy a bullish trend due to rising sales of data center services. According to Cisco Global Cloud Index, worldwide data center IP traffic will nearly quadruple over the next 5 years.

Conclusion

From a strategic point of view, Windstream should grow its broadband and data center businesses for future profit. Based on its last report, we are convinced that investors should watch Windstream for a long-term opportunity.

Source: Is Windstream A Good Pick?