David Granik
Long/short equity, hedge fund analyst, media, telecom

Windstream: Attractive FCF/Dividend Yield Play, Operating Fundamentals Hitting Positive Inflection Point

Windstream Holdings (WIN; $9.05) – BUY RECOMMENDATION – $12 Price Target

(Originally recommended on 2/4/14 with stock at $7.20)

THESIS: Strong risk/reward with attractive 11.0% dividend ($1.00/share) and 16.5% FCF ($1.49/share) yields in a stable, consolidating industry. Revenue trends hitting positive inflection point; capex, opex and interest expense savings should offset potential cash tax increase, leading to FCF stabilization and dividend payout sustainability. Investors (and sell-side) have been overly bearish on this name, nearly-fully discounting a 25-50% dividend cut, creating meaningful optionality in the case this event occurs (to which I assign a 25% probability).

The Business:

Windstream provides a full suite of communications and technology solutions, including managed services and cloud computing, to businesses nationwide. The company also offers

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