3 New Reasons To Consider Windstream Now

| About: Windstream Holdings, (WIN)

Windstream (NASDAQ:WIN) had a very busy end to its week last week, and it was not a good one. That isn't to say that it's a bad stock to own. As a telecommunications firm, Windstream is poised for very large gains in the future due to the increased speed of broadband and wireless networks. Do not get too caught up in the disappointing announcements. Windstream should see steady, meaningful growth in the near future.

Let's address the bad news first. Windstream stock price fell about 10% to about $10 on disappointing earnings announcements. Even though earnings were up 11 cents per share, analysts expected earnings of 14 cents per share, and criticized Windstream accordingly. Although it took a beating on Tuesday, most analysts still rate it as a hold, with a few rating it as a buy.

There is a growing concern that missing earnings estimates will become a trend for Windstream. Specifically, its first-quarter reports state that its total revenues and sales were down 0.5% on the previous year. The fact that its stock is down about 14% on the year certainly will only add to concerns.

On the positive side, Windstream was very oversold toward the end of the week. As a dividend paying stock, overselling leads to low stock prices. As it pays a dividend, a low stock price can increase the overall yield of the stock for bullish investors, provided the stock increases. Being that it recently declared a quarterly dividend of 25 cents, bullish investors should have reason to purchase this stock low, currently under $10.

Also positive is the Paetec acquisition which brought Windstream a healthy increase in business service revenues. If it can manage to keep these business customers happy, there is a good chance it can keep them as customers for a very long time. As Dell (NASDAQ:DELL) has shown, good service can keep business customers indefinitely.

Although Paetec brought with it a large debt burden, Windstream has been slowly paying down this debt to decrease its leverage. CEO Jeffrey Garden has stated that although the debt burden has increased, investors will continue to see the high dividend yield well into the future.

But the most important factor in Windstream's success is increases in Internet speed. The increase in broadband networks has come with increased demand. Especially since the end of the recession, revenue has increased rapidly for high speed broadband networks. With a rebounding economy, businesses are increasingly sucking up more and more bandwidth, further increasing demand for these services.

Windstream should see a high growth in revenue due to dark fiber, which is expected to be a market worth about $1 billion by the end of this year. Dark fiber networks are privately operated and run over a fiber leased or bought from a supplier. The upside to dark fiber networks is that the users do not need to purchase bandwidth on existing networks.

Since the majority of dark fiber purchasers need very high performance, companies pay very well for the networks. Windstream's acquisition of Paetec should help increase its ability to supply dark fiber networks to high paying business customers. In fact, that is exactly the intent of the acquisition. Windstream understands that the road to profit goes directly through high paying, high bandwidth businesses.

But Paetec is probably not the end to this means. To further penetrate the market, it is likely that Windstream will continue its acquisitions spree. Moreover, I would expect Windstream to continue acquiring companies that have a strong hand in cloud networking and cloud computing. It fits in line with the string of acquisitions it completed in the past few years and with the direction it is heading in. To properly serve high demand businesses, it will need to provide a wide range of cloud computing services.

You can expect competition to be a huge driver of these acquisitions. Broadband services and cloud computing hold the key to huge amounts of profit.

One competitor, CenturyLink (NYSE:CTL), is currently in the process of shedding legacy voice service systems. It cited this as the main cause of its earnings decrease of 5.2%. However, underneath the decrease in earnings are increasing sales of high-bandwidth services. This was a main driver of its acquisition of Qwest. In fact, even with a 5.2% drop in revenue, CenturyLink's stock increased about 4% to about $40. CenturyLink is putting itself in a strong position for future revenue growth. Anyone looking at Windstream should consider taking a look at CenturyLink. Both companies are taking similar routes to future success.

On a different end, rival AT&T (NYSE:T) is in a race to provide LTE network service. It is attempting to expand these networks to provide the service needed for the rapid increase in data usage caused by smartphones and tablets such as the iPad or Kindle Fire. This should help Windstream, as the two rivals appear to be differentiating its approach to growth. With AT&T catering to wireless customers, Windstream should be able to forget about one of its major competitors. I expect this is fine with AT&T as well, since it can barely keep up with the pace at which Verizon (NYSE:VZ) is rolling out LTE service.

It should be interesting to watch the market as businesses develop. With cloud computing, we have often seen a strong competitor emerge out of left field and change the game completely. I have no reason to expect this to occur, but you can guarantee that Windstream will be keenly focused on ensuring this does not happen.

Overall, I would not say that Windstream is a good or bad stock to own in the long run. By wooing businesses, it could have found a path to stable long-term revenue. However, there will be much competition in this market, especially since there has been increasing focus in business services over the past year. If you are looking for a short-term investment, Windstream is definitely the stock for you. It is positioning itself for future success, as the disruption and discontinuation of previous aspects of its telecommunications business become obsolete.

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