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In mid-April, CenturyLink (CTL) announced the successful completion of the debt tender offer begun on March 21, 2012 by its wholly-owned subsidiary, Qwest (delisted as of April 4, 2012). CenturyLink is adding Qwest to its previous acquisitions of Embarq in 2009 and Savvis in 2011. CenturyLink's acquisitions have driven it to its current position as the third largest telecommunications corporation in the U.S. These acquisitions are more than offsetting its revenue loss from CenturyLink's departing landline phone customers while diversifying its product lines, which now include landline phones, television, high speed internet, data hosting and colocation.

Competitors By The Numbers

CenturyLink is not currently participating in wireless voice and data, as its competitors are, but I would not be surprised if it moved into this space, which it would most likely do with another acquisition. Growing demand for high speed internet on mobile and home devices is propping up CenturyLink's revenue, as landline phones, once CenturyLink's primary business, fall out of favor. CenturyLink also adds revenue through the 70,000 subscribers to its Prism TV services in select markets (five markets, as of the 2011 fourth quarter earnings report).

CenturyLink had 5.5 million high speed internet customers as of December 31, 2011. By comparison, as of April 19, 2012, Verizon (VZ) had 5 million subscribers to its FiOS internet service and a further 8.8 million subscribers to its DSL internet service. CenturyLink has catching up to do, but then again, its market cap is much smaller: $23.4 billion compared to Verizon's $109.6 billion. For further comparison, AT&T (T) has 16.4 million broadband customers and a $182.2 billion market cap.

Comcast (CMCSA), has the most broadband customers of any broadband provider, with 18.1 million current subscribers and a market cap of $78.7 billion. Sprint Nextel (S) is a direct competitor for CenturyLink in the home phone market only, and in its most recent quarterly report, it did not provide subscriber numbers. Sprint's majority ownership in Clearwire, which led to a confusing partnership, does seem to put its wireless internet service in competition with CenturyLink's broadband, but comparison between wireline and wireless subscribers is difficult due to different servicing and revenue models. In any event, the beleaguered Sprint currently has a market cap of $6.9 billion, making it the smallest of the major telecoms.

Acquisitions Driving Growth and New Revenue Streams

CenturyLink's 2011 acquisition of Savvis added hosting and colocation to CenturyLink's stable of business areas, and according to CenturyLink already accounts for 20% of total revenue. CenturyLink expects to continue to add to data center capacity for colocation, managed hosting, and cloud services revenue growth. In its data centers, it currently has total sellable floor space of 1.3 million square feet, with an additional 100,000 square feet expected in 2012. According to its fourth quarter 2011 earnings report, CenturyLink is expecting to release a managed hosting platform for small and medium-sized business before the close of 2012.

I think that CenturyLink's continued expansion into managed hosting, colocation, and cloud services will lead to even better revenues in the future as the company fully completes its mergers and acquisitions and focuses on the bottom line. Hosting services, including the cloud, may create a boom bigger than the dot-com boom according to some predictions, and perhaps sooner than expected. I think that the potentials cloud computing represents certainly make this a possibility, and I believe that if data security weaknesses inherent in current cloud computing architectures are addressed, the cloud could become just as useful (and normal) to every day life as the internet is now. For this reason, I am bullish on any stock with healthy financials that offers this service array, including CenturyLink.

CenturyLink has been divesting unnecessary assets, including unused real estate, assumed with its acquisitions. These sales, though not as profitable as their full potential in an overall down market, will assist CenturyLink in cleaning up its balance sheets. Its most recent sale, of Qwest Plaza in downtown Seattle, adds $137 million to its ledgers.

Ongoing broadband expansion projects in rural areas that are partly or wholly funded by state and local agencies, like the recently announced $130 million broadband project in Colorado, will help CenturyLink grow more quickly by reaching more consumers with less capital outlay - a win-win for CenturyLink and its customers.

Outlook

Despite a high debt to equity ratio, which is primarily due to its acquisitions, CenturyLink is paying a healthy dividend of 7.6%, compared to AT&T's dividend of 5.7%, and Comcast's dividend of 2.2%.

Behind its peers by almost every measure, Sprint has not paid a dividend since the close of 2007, as it continues to report negative earnings per share. There were bright spots in Sprint's most recent quarterly earnings call, particularly that its subscribers stand at a record high of 55 million, its variable network expenses remained flat from 2010 to 2011, and its service revenues increased 17% from 2010 to 2011. However, even with the good news, Sprint is not a profitable company, and in my opinion, its third and fourth quarter 2011 reports are too optimistic about the iPhone's future effect on the bottom line. AT&T, C Spire (not traded), and Verizon now carry the iPhone in the U.S., and these carriers have better reputations and track records.

I don't believe that any one device will pull Sprint out of its slide, especially since the New York Attorney General is now accusing Sprint of failure to report and release sales taxes owed. Sprint's ongoing troubles are making it increasingly difficult for the company to compete with its peers, and even as a relatively new telecommunications company, CenturyLink does not have much to worry about from Sprint.

CenturyLink does have work to do to complete its recent mergers and present a clean balance sheet. However, with its positive outlook, diverse revenue channels, and current price to book of 1.1, I believe that it is a safe stock to buy. CenturyLink will have its annual shareholders meeting on May 23.

Source: 3 Huge Reasons To Be Bullish On CenturyLink