Why It Is Good To Hold Windstream

| About: Windstream Holdings, (WIN)

Windstream (NASDAQ:WIN) has announced the expansion of its Advanced Application Reporting solution for enterprise business customers. The product enables organizations to have real-time visibility into their Wide Area Network traffic. In this article, I want to explain how the rising IP traffic by business users will enable Windstream to increase its revenue with its new solution. The development will allow Windstream to strengthen its price multiples.

Why will Windstream strengthen its price multiples? According to the Cisco Virtual Networking Index Forecast (2011-2016), the amount of IP traffic by consumers and business users will increase. By 2016, there will be 3.4 billion Internet users ― about 45 percent of the world's projected population. Enterprises will turn to solutions like AAR to optimize network connectivity. This factor will improve Windstream's numbers.


Windstream's AAR will make good sales because it is the company's growth area. In the company's fiscal 2013 first-quarter report, business service revenues were $914 million, a 2 percent increase year-over-year. Windstream's total business and consumer broadband revenues represent 71 percent of total revenues.

"Our vision at Windstream is to be the premier enterprise communications and service provider while maintaining our stable consumer business, which will result in substantial cash flows and long-term support of our current dividend," said Jeff Gardner, president and CEO. "We are successfully repositioning the company. Over the long term, we believe our strategy and investments will allow us to grow and increase shareholder value."

In the company's fourth-quarter report, total enterprise customers, who generate $750 or more in revenue per month, grew 6% year-over-year. Business service revenue was $917 million, a 3% increase year-over-year.

"Windstream continues to produce substantial free cash flow that enables us to invest in our business and reduce our debt while continuing to pay our $1 annual dividend," said Gardner.

Business enterprise Products

Windstream has developed products like the new one in the past. They enable business enterprises to perform their jobs efficiently. Recently, Windstream opened its enterprise-class managed hosting solution in McLean, Va. Its Dedicated Internet Access products are created to enhance business-critical applications with fast Internet access. Windstream Ethernet services allow enterprises to move large quantities of data with speed.

The Advanced Application Reporting product will allow Windstream customers to collect and display Wide Area Network statistics to aid capacity planning. The product allows companies to use bandwidth efficiently and allows for passive data collection.

"Offering a solution for IT professionals to access their WAN bandwidth information and intelligence and perform their jobs more efficiently is a priority for Windstream," said Don Perkins, senior vice president for Enterprise Business Marketing. "We're proud to offer Advanced Application Reporting to enterprises nationwide and of our commitment to providing superior communication solutions and operations."

The new product is important to Windstream. Fortunately, it is the kind proving popular with enterprise businesses, and gaining a head start over rivals will prove profitable to Windstream.

When we look at the company's financial reports once again, we notice that the enterprise business sector drives growth and shows year-over-year improvement. It is clear that Windstream's revenues have been improved compared with the previous year. So it can be said that the business division is run efficiently.

With a price to sales of 0.80, Windstream is trading cheaply, even though it has a price-to-earnings ratio of 30.07. The AAR product will slow Windstream's year-over-year revenue decline, improve an EPS of 0.28, and help to lessen the burden of a $9.1 billion debt.


How is Windstream performing in relation to its rivals? With a gross margin of 50.31%, compared with 58.39% for CenturryLink (NYSE:CTL)and 90.92% for Frontier (NYSE:FTR), and EPS of 0.28, compared with 1.25 for CenturyLink and 0.13 for Frontier, Windstream is not doing badly. CenturyLink has just clinched a deal to deliver Ethernet, Internet Protocol and Optical Wave services to scientists and engineers of popular research institutions. Windstream's new product positions the company to get such opportunity. Frontier has a good product with its Dedicated Internet Access. However, AAR is unique because it allows for bandwidth planning and new application deployment.


Based on the performance of Windstream's business enterprise products and the growth prospects of Internet traffic, we can say the new product will improve Winstream's revenue. Looking at the price multiples in relation to others, its debt load, and its year-over-year revenue decline, we can say it is good to hold Windstream for now.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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