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CenturyLink, Inc. (NYSE:CTL) provides voice, data and high speed broadband internet services. It is also the global leader in cloud infrastructure and hosted IT solutions. I continue to remain bullish on the company as it has managed solid growth in its strategic revenue,which contributes to around 50% to its operating revenues. Also, the company offers a striking dividend yield of 7.0% with a cushion of free cash flows. Furthermore, CTL also enjoys one of the lower leverages among its peer companies.

The company managed solid growth in its subscriber base as it added 33,000 high speed internet customers and 17,000 Prism TV customers. CTL is also looking to expand its IPTV reach to Qwest markets, which will further strengthen strategic revenues. However, in the recent third quarter, CTL experienced a minimum loss of 5.3% YoY in access lines among its peer companies as Windstream Holdings' (NASDAQ:WIN) and Frontier Corporation's (NASDAQ:FTR) access lines were down by 6% YoY and 8.7%YoY respectively. The company has launched several bundled offerings in which they have kept internet prices low along with home phone line packages, to boost the legacy revenues.

There has been a sharp rise in operating expenses due to the $1.1 billion write offs of data hosting goodwill and the higher maintenance cost from the Colorado floods. I believe that the pressure on margins will ease in the future, as the abovementioned costs are just onetime events.

Dividends
Earlier this year, CTL cut down its dividends to $0.54 per share. I believe it was a more sensible strategy, as it has significantly brought down the payout ratio to more manageable levels, which could be sustained for the long term. Also, the company can now focus on enhancing its network capability to improve its IPTV services and enhance its broadband internet speed. On the other hand, CTL is also undergoing a share repurchase program and has bought back 11 million shares in 3Q'13, which brings the total to 38 million shares till November 5, 2013. So, the management must believe that the stock price is undervalued, as determined by me in my previous article "Immense Growth Potential Defines CenturyLink's Future" through a discounted cash flow analysis. Also, CTL is currently trading at $31.07, which is the bottom-end of its 52-week range of $29.93-$42.01,meaning that we can expect rice appreciation.

Leverage

Companies

Total Debt/ Equity

Interest Coverage Ratio

CTL

123.14x

2.0x

FTR

208.53x

1.67x

WIN

1034.9x

1.53x

Source: reuters.com

As we know, these companies operate in a capital intensive industry and they carry a lot of debt, but an encouraging sign for investors is that CTL has the lowest debt-to-equity ratio among its peers, which shows that the company is more likely to maintain its current dividends and continue with its share repurchase programme. It can also undergo future acquisitions to enhance its network capabilities as it has recently acquired Tier-3 data hosting service provider for $200 million with cloud services similar to Savvis, and it is expected to be integrated across all CTL data centers.

Risk
Competitive pressure is building up from cable companies as they are heavily investing in new marketing initiatives. On the other hand, Verizon Wireless is submitting bids for the dark tower to fiber, which will challenge CTL's competitive position. Regulatory risk continues to play an important part as Universal Service Funds makes up a significant part of the company's total revenue. Furthermore, it also faces integration risk, as the improvement in revenues after the successful integration of Qwest and Savvis does not match expectations. Lastly, CTL operates in an industry that is dependent on the overall economic conditions.

Conclusion
The current stock price is depressed, so I believe the stock is currently trading at a discount and $31.07 is a strong entry point. Although voice revenues are constantly declining, growth in broadband and video services will more than off-set these pressures. I also believe the data hosting business will drive growth in future with its international outreach.

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.

Source: Depressed Stock Price Makes An Ideal Entry Point Into CenturyLink