CenturyLink (CTL) is an effective defensive asset from the telecommunications industry that investors can feel confident in adding to the portfolio. There is potential for CenturyLink to grow while it has been routinely stable in the recent past. It's making strides to capitalize on opportunities for sustainability in the future.
As the third largest telecom in the country, it's making acquisitions and decisions to prepare for the evolving developments within tech industries in the next few years. CenturyLink's success in the future depends on its ability to utilize effective foresight while finding divergent opportunities than top-tier competitors like Verizon (VZ) and AT&T (T). CenturyLink is currently undervalued in the market and has the opportunity to grow with the advancements in the telecommunications and data industries.
CenturyLink's sales growth is down .92 percent from last quarter but it has increased by over 170 percent from the previous year. Return on equity has been stable around six percent for the last three quarters. Operating margin and net margin have been decreasing marginally for the past three quarters. Price is 16 times earnings and is more than the industry average by just over one percent. Its return on equity and net margin both exceed the industry average. The current ratio is between .5 and one while gross margin and institutional ownership both exceed 55 percent. Generally speaking, the latest financials from CenturyLink paint a positive future for a short and long-term future outlook.
The acquisitions of Qwest and Savvis have set CenturyLink up for a promising future of diversified earnings and growth. Qwest was the fourth largest telecom in the country before being acquired by CenturyLink. Savvis is one of the industry leaders in cloud computation technologies and services around the world. CenturyLink is now focused on improving its presence in the cloud and data services industries while also improving its market share in the cable and communications industry within the United States. CenturyLink is improving its domestic earnings through its PrismTV segment, DirecTV subscriptions and bundle contracts with competitors like Verizon. These partnerships will help CenturyLink capitalize on rural regions and wireless customers that it never had the opportunity to reach without restructuring its core operations.
CenturyLink is also upgrading its infrastructure in order to capitalize on the changes in the industry like 4G capability. CenturyLink is making the necessary transition to compensate for the losses incurred by people leaving landlines for wireless services. CenturyLink does not offer the wireless services like AT&T and Verizon but it has formulated an effective plan to succeed in the near future and long-term projections as well. The spree of acquisitions has created a large amount of debt but CenturyLink has the cash flow to sustain earnings and the potential to increase its book of business as well. The Qwest acquisitions increased CenturyLink's landline customer base to 15 million while Savvis is expected to grow organically by more than 10 percent this year. CenturyLink has a unique position in the industry as it is far superior to competitors like Frontier (FTR) and Windstream (WIN), while being different enough from Verizon and AT&T as to not be quelled by direct competition with these telecom tycoons.
The Savvis acquisition may be the most vital factor in CenturyLinks growth and success in the future. By the end of the first quarter, there were a total of 51 Savvis data centers in Asia, Europe and North America as well. The revenue for this segment continues to grow each quarter. Savvis will be the catalyst for making CenturyLink a leader in the tech industry on a worldwide scale.
Savvis is a global leader in IT solutions and cloud infrastructure system for various businesses around the world. Savvis recently announced the Symphony virtual private data center (VPDC) in Canada that offers services at three different levels. Out of its 2,500 plus commercial customers, 30 of them include the top 100 entities of the Fortune 500. Helping these organizations reduce capital expenses and improving services thorough cloud computation technology will help CenturyLink become the preferred provider by international organizations in a variety of regions around the globe. The recent announcement for the Canadian launch followed announced expansions for Japan and Hong Kong as well. This segment of CenturyLink's operations will further distinguish it from competitors in the telecom industry.
CenturyLink is restructuring its management and operational model in order to effectively manage these acquisitions and the costs and services attached to them. The ability to integrate these segments while increasing earnings despite the declining landline subscriber base is invaluable. CenturyLink is also investing in its fiber optic network and tower connections in order to improve its communication and bandwidth capabilities in the United States. CenturyLink has its network connected to over 12,000 towers in over 30 states and plans to connect to another 4000 to 5000 towers before the end of 2012. Improving its 4G and broadband capabilities will make CenturyLink a more valuable partner to contract with in the near future. It was able to increase its high-speed internet connections by more than 85,000 in the first quarter of 2012.
Investing in increasing data capabilities, cloud services and expanding its client base for each of its diverse operations is a practical and efficient plan to improve growth into the future. CenturyLink is currently managing the increased debt from acquisitions and one-time fees adequately while providing a substantial dividend for investors. The ability to provide a healthy dividend while enduring the declining landline base and improving its new business segments for the future makes this one of the most stable, defensive assets in the telecom industry.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.