The Good News About Windstream Corporation

Apr.25.12 | About: Windstream Holdings, (WIN)

We cannot imagine a world without telecommunication. Undoubtedly, it will become more and more taken for granted and a part of both our daily personal and business routine. Previously stand-alone devices are now connected. We can make photos and videos with our cell phone, watch TV using our internet connection, surf the internet through our Smart TV, participate in video conferences, talk online with relatives far away, connect to internet from various places, and easily share different content with people worldwide.

Various industries use the newest solutions provided by telecommunication. For example, the entertainment industry provides us with the access to movies and music, the finance industry helps us process transactions, etc. This all proves that telecommunication is now one of the most important components of social, cultural, and business activity. And this process has only just begun. Recent development shows that communication devices may be embedded in many types of products in the future. This provides lucrative business opportunities for the telecommunication sector and profitable opportunities for investors.

The market for telecommunications is expanding rapidly. According to the Telecommunications Industry Association (TIA), spending on the overall international telecommunications market was $3.34 trillion in 2011. TIA forecasts a 7.3% annual growth during the next years, reaching $4.4 trillion in 2015. There is a huge battle between wired and wireless technologies, and while TIA says that growth will mainly be driven by wireless, it describes some areas of wired technologies like cloud computing as growing sectors.

One of the leading providers of advanced network solutions, including cloud computing and managed services is Windstream (NASDAQ:WIN), a wireline telephone and DSL internet provider headquartered in Little Rock, Arkansas. Windstream offers broadband, phone and digital TV services to consumers primarily in rural areas as well as a wide range of IP-based voice and data services and advanced phone systems to businesses and government agencies. Windstream has been appearing in the headlines lately, so let's see what the future holds for its stock.

Windstream has always pursued an aggressive acquisition strategy and has made quite a few smart acquisitions recently. After the acquisition of CT Communications in 2007and Lexcom and D&E Communications in 2009, the pace of growth became even faster: It acquired KDL, Norlight, Hosted Solutions, Iowa Telecommunications Services, and NuVox in 2010, and PAETEC in 2011.

Acquisitions allowed Windstream to broaden its services and shift its revenue mix to faster-growing parts of the industry. Now Windstream provides service for approximately 3.3 million access lines in 29 states. It is proud of its more than $6 billion annual revenues, and is listed on the S&P 500 index.

After buying PAETEC, Windstream's fiber-optic network now spans more than 100,000 route miles across the country, delivering a robust portfolio of advanced data, voice and network services with virtually unlimited bandwidth potential. Although Windstream began as a primarily residential-focused company, now it has become an enterprise-focused provider. Its business customers include 80% of the Fortune 500 companies.

John Leach, Executive Vice President of Business Sales at Windstream, stated that with the integration of PAETEC's high-quality services and clientele, the company now boasts around 450,000 business customers. Windstream is now able to provide a wide range of products and services from cloud computing solutions, data center services and disaster recovery solutions to network, data and voice solutions such as Ethernet and MPLS networks. By broadening its services, Windstream made a smart move and is able to stay ahead of its already established competition.

One of the latest announcements coming from Windstream is that it opened its newest data center in Little Rock in April 2012. This center is designed to meet the growing demand for dedicated, managed, and cloud-based services. Windstream now offers data centers in major metropolitan areas like Boston, Charlotte, Philadelphia and Phoenix. I consider this as another initiative for modernizing Windstream's service portfolio.

Cloud computing and broadband are the areas where Windstream is aggressively expanding and is clearly marching ahead of its competitors. Windstream took the advantage in these two areas and has quickly shifted from older, more traditional technologies to the latest trends and embraced the more popular technologies.

In my opinion, the future of cloud computing definitely looks promising as there are many already proven advantages to it. According to IBM's Chief Technology Officer Kristof Kloeckner, cloud computing reduces IT labor costs by 50%. When a business implements a cloud system, most of the IT responsibility is repositioned within the providers, which makes it easier to do all software updates and solve any technical issues that may occur as these no longer have to be addressed individually. This is a major advantage, but also not the only advantage cloud computing has to offer.

The demand for cloud computing solutions is predicted to grow among smaller firms, too. Many large businesses already have an adequate IT infrastructure in place while smaller companies are just starting to realize the benefits of cloud-based services. By outsourcing IT infrastructure to a data center, small businesses also can afford a highly available, efficient, and professionally administered IT environment. As more companies begin realizing the benefits of data centers, the need for these services may skyrocket.

According to report "Sizing the Cloud" given by Forrester Research, an independent technology research firm, the cloud computing market worldwide is expected to reach $241 billion in 2020 in comparison to $40.7 billion in 2010.

Although Windstream is heavily exposed to the traditional phone business, it has a remarkable growth potential in advanced enterprise solutions, MPLS Networking, VoIP Service, and Network Security. The company's stock is currently trading around $11 with a 52-week range of around $11 to $13 and current market cap of around $6.7 billion. The average analyst rating of the stock is "hold", with a few recommendations of "strong buy" and "buy". Windstream's earnings estimates for earnings per share range from $0.70 in the current year to $0.73 in 2013. Nevertheless, Windstream has to face strong competition from other providers in telecommunications industry.

One of the major players in the industry is AT&T (NYSE:T), the second-largest wireless carrier and one of the largest phone companies in the United States. AT&T offers (apart from wireline solutions) wireless voice and data communication services, which enable the company to take its share from the fast-growing wireless segment. The company's stock is currently trading around $31.

Some of the other competitors in the field are BCE (NYSE:BCE), the largest telecommunications company in Canada, Sprint Nextel (NYSE:S), one of the largest wireline and wireless communications services provider in the U.S., and Verizon (NYSE:VZ), which is definitely the industry's leader on a global level, with its stock currently trading around $38.

In addition, cable companies such as Comcast (NASDAQ:CMCSA), Time Warner Cable (TWC), Charter (NASDAQ:CHTR) compete with Windstream as they provide broadband internet access.

In this huge battle, Windstream has only one way out- to keep focusing on advanced technologies. In this regard, there is some good news for investors. The pace the company is adapting new technologies appears to be convincing. If cloud computing turns out to be as popular as predicted - and I think it will, Windstream stock will become a great investment opportunity that may bring an attractive return to patient investors.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.