CenturyLink (CTL) is taking care of any long-term cash obligations it may have by buying debt tender notes from its wholly-owned subsidiary, Qwest Corporation. The due dates listed, as per the filing, are 2015 and 2016 respectively. Since over $800 million in debt tender notes sold for over $1 billion, I believe these notes will accrue enough interest to be valuable to CenturyLink. Also, since Qwest Corporation is already a subsidiary of CenturyLink, I don't see this as a high-risk move. The money is already on its balance sheet. If anything, it is a huge asset transfer, essentially. This is probably going to hurt its stock price initially, however, as CenturyLink allows interest to accrue or sells series of notes. The price will reestablish itself and then will be in a position to begin climbing. The stock is currently trading around $38 per share, and I believe we have not seen a ceiling for CenturyLink, as it is currently the third largest telecommunications firm in the country.
I believe CenturyLink will face stiff competition from its rival in the business, AT&T (T). AT&T recently tested its new 4G LTE network in 13 cities across the country. The network showed to have download speeds that are nearly twice that of competitors. This is an obvious and tangible improvement over past networks, which could definitely translate to growth and increased revenue in the future. Its stock price currently sits at just above $30, only one dollar under its 52-week high. As AT&T rolls this new network out to more cities, consumers will surely begin to notice the benefit of adopting this new technology. More sales means good news for AT&T and bad news for CenturyLink.
Also, given the sound numbers of AT&T's recent balance sheet, I find it to be a terrific investment right now. Many of AT&T's resources go into research and development and, as we can plainly see in the advent of the new 4G LTE, it is paying major dividends. Many firms in the telecommunications sector have the funds to contend with AT&T's new network. However, because the other firms lack the technology to put together a legitimately competing service (in terms of download speeds), these companies may be at the mercy of AT&T for a period of time.
Comcast (CMCSA) is another serious competitor of CenturyLink's. However, due to the different arenas available in the telecommunications industry, Comcast is currently focusing on television. It has two major cash cows, Telemundo and NBC, and thus will not be not looking to directly compete with AT&T's 4G LTE network. However, Comcast is seeking to stream all 32 sports of the Summer Olympics in London live online. Due to the fact that the Olympics are one of the world's most viewed events, Comcast should be cashing in soon with advertisements. Of course, this points to significant gains, although the profits may not be sustainable at such a high level after the Olympic Games are over. The general consensus, however, paints Comcast as bullish because of the unprecedented ease of viewership it will have access to.
Verizon (VZ) is a firm that constantly competes with CenturyLink and AT&T, no matter which arena of the market it is pushing. Verizon, which concentrates heavily on phones will have to compete soon with AT&T's new product. However, Verizon might have a leg up on the competition due to strong 4th quarter reports that somehow managed to beat Wall Street's expectations. The sale of Apple's iPhone have surely driven up Verizon's stock price, but don't expect Verizon to outpace the competition for a long period of time. I think that other competitors, especially those with more diversified products and services lines, will fare better and may leave Verizon scrambling to keep up.
BCE (BCE) is CenturyLink's biggest competitor in the Canadian market. This company specializes in internet service, phones, and telecommunications, but it has the vast majority of its customers in Canada. CenturyLink will have a difficult time expanding into BCE's territory and could lose money trying to gain a foothold in that market. For instance, recently BCE acquired exclusive rights to market the new Samsung Galaxy S II HD LTE superphone. Since AT&T was the primary developer of the new 4G LTE network, it will have some degree of involvement, too. The acquisition will undoubtedly push BCE's stock higher, as the Samsung Galaxy series has been incredibly popular with the public. BCE is currently trading at just over $40 per share.
CenturyLink is in a great position, in my opinion, because it is not being naive to the fact that, it is not completely untouchable. I see evidence of this in its recent partnership with DirecTV (DTV). This partnership will surely help it gain market share in areas that may have been lagging behind. Obviously large firms have the capacity to lose sight of their markets as they become spread too thin. I think the partnership with the smaller but solid DirecTV is a great hedge against this potential problem. It also shows that CenturyLink seeks to aggressively push where it can find success. At this point, competing with a company like AT&T may simply be too expensive, and offer too little of a reward. The DirecTV deal allows CenturyLink a chance to profit in a different arena.
I cannot say CenturyLink will find the success of some of its competitors. But I don't see it hitting a ceiling soon, so stick with it for modest growth, but limit your expectations. If AT&T's phone turns out to be a dud, and CenturyLink's purchase of debt notes provides ample capital, look for the company to make a big move.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.