Looking for a safe harbor in the storm of a finicky market? Try CenturyLink (CTL). The telecommunications company, a member of the S&P 500, operates as an exchange carrier and an Internet service provider. It is the third largest such service in the United States, coming in behind giants AT&T (T) and Verizon (VZ). The company offers voice and data communications as well as television and home security services. It is also a global leader in cloud infrastructure.
CenturyLink has been growing steadily over the past four years through acquisitions. In 2009, the company, which was then called Century Tel, purchased Embarq. The all-stock transaction was worth an estimated $11.6 billion including the assumption of Embarq's $5.8 billion debt. With the acquisition came the name change to CenturyLink.
In a reported $22 billion dollar deal, Qwest Communications came into the fold in 2011. Under the agreement, the company exchanged 0.1664 of its shares for each share of Qwest. The addition of Qwest, which was the fourth largest telecommunications company in the nation, put CenturyLink firmly in the third place position it holds today.
In July of 2011, the company acquired Savvis Inc., which allowed them to integrate expanded managed hosting and cloud services into their offerings. The price was $40 per share or approximately $2.5 billion. With the acquisition of Savvis, CenturyLink jumped into the global market with a vengeance. Savvis was a savvy move, boosting the company's competitive position and driving future growth.
For the quarter ending June 30, 2012, CenturyLink had solid revenues and beat expectations on earnings per share. Compared with the same quarter a year earlier, GAAP earnings per share contracted appreciably. CTL paid a quarterly cash dividend in September to shareholders a record of $0.725 per share, rewarding investor confidence in the company. Operating revenues were up at $4.61 billion over $4.41 billion in Q2 2011. CenturyLink credited a $278 million revenue contribution from Savvis and an increase in consumer broadband to heightened returns.
During the same quarter, in the regional market, the company reported $2.48 billion in total revenues. That number is down 2.6% from the same quarter the previous year. Conversely, regional market strategic revenues rose 5.8% to $894 million. The star performer in the regional markets group portfolio was broadband service. It ended the quarter with 5.76 million Internet subscribers. It expanded its Prism TV subscribers by 11% over Q1 2012 and increased penetration into available homes by a respectable 9%. The company reported modest growth in the wholesale segment of 2.1 percent over Q2 2011 to $572 million.
Another highlight of the quarter included the success in reducing access line loss by 22%. CenturyLink also announced that as of June 30, 2012 they were operating more than 50 data centers in North America, Europe and Asia with over 1.4 million square feet of sellable floor space.
CEO Glen Post has assured investors that CenturyLink remains focused "on broadband expansion and enhancement, Prism TV, fiber to the tower and managed hosting and cloud computing services in order to maximize the opportunities for future revenue growth." After the market closes on November 7, the company will release Q3 information.
The Bottom Line
The telecommunications industry is the top-performing segment of the market for 2012. It is attractive to investors seeking shelter from a volatile market. As a whole it generates a stable cash flow and almost zero exposure to European markets. The segment has yielded a healthy 12.2% return this year. CTL alone has generated a dividend yield of 7.5%. Integrated firms such as CenturyLink are expected to continue to outperform because of the appealing package deals they offer consumers.
As of today's market (1st November, 2012), the stock is sitting at $38.38 per share. The 52 week range has gone from a high of $43.43 to a low of $34.11. The company has a market cap of $23.9 billion. The EPS is $0.84 with shares outstanding of 622.65 million.
According to an S&P survey of analysts, the company has garnered 11 "buy" ratings, 4 "buy/holds" and eight "holds." The general consensus among the experts who rate the company a "hold" is that its recent acquisitions have increased CenturyLink's operating cost and debt, which are expected to weigh on the company in the near future. However, the majority of analysts believe that the synergies expected from recent acquisitions will boost the company's competitive position and bolster growth. Shareholders are on the right track with CenturyLink.