Is CenturyLink Poised For A Bull Run From Its 52-Week Low?

| About: CenturyLink, Inc. (CTL)

CenturyLink (NYSE:CTL) operates as an integrated telecommunications company in the U.S. It recently declared its second-quarter results that turned out to be mixed. CenturyLink has endured a difficult time this year after it cut its dividend in February. It has lost 14% of its value in 2013 and is trading near its 52-week low. Can CenturyLink embark on a bull run from here? Let's try and find out.

Mixed performance

Prism TV, data hosting units, and broadband segments were the star performers for CenturyLink in the second quarter, which were driven by robust demand from business consumers for high bandwidth data services. In addition, the company was also disciplined as far as expenses were concerned. On the negative side, there was a decrease in revenue from legacy services due to access line losses.

This led to a total revenue of $4.5 billion, which was behind consensus estimates of $4.53 billion. As compared to the year-ago period, this was a 1.9% decline. This was primarily because of a general decline in all its segments except data hosting, which saw a revenue increase of 7.4% but was not enough to offset declines of 3% in consumer, 0.8% in business and 3.8% in wholesale segments.

Quarterly adjusted earnings per share came in at $0.69 and managed to beat the consensus estimate of $0.67.


The launch of Prism TV in new markets, expansion of broadband operations, and better cloud computing services can help CenturyLink perform better in the future. For fiscal 2013, CenturyLink expects revenue of $18.05 billion-$18.20 billion as against analysts' estimates of $18.07 billion.

CenturyLink has plans for expansion in cloud computing as well. As a part of this strategy, it recently acquired AppFog, adding AppFog's platform-as-a-service (NASDAQ:PAAS) to CenturyLink's suite of Savvis Cloud products to gain relevance amongst enterprise clients. This acquisition is aimed at strengthening its subsidiary Savvis that it acquired in 2011.

According to Gartner, Platform-as-a-Service is projected to grow going forward, with worldwide PaaS revenue totaling $1.5 billion in 2013 and growing to $2.9 billion in 2016. AppFog will benefit from the trend as a leading provider of the solutions in the market. This will boost CenturyLink's data hosting segment.

CenturyLink is aware of the fact that companies, which are not agile enough to innovate along with the changing market and industry demands, risk falling behind and failing. In response to Google's Fiber, CenturyLink has declared that it will offer 1Gbps speed in Omaha. By the end of October 2013, about 48,000 homes will be wired with the 1Gbps service. CenturyLink, however, has a tough challenge of competing against Google Fiber.

A look around

Cincinnati Bell (NYSE:CBB), another player in the telecom service sector, separated its Data Center Colocation operations through an initial public offering of CyrusOne.

Cincinnati recently reported its second-quarter results with EPS at $0.04, which was better than consensus estimates of $0.02 but was a decline from the year-ago quarter's earnings of $0.05. Revenue also declined to $312 million, surpassing the consensus estimates of $304 million. The declines are understandable as the Datacenter Colocation operations were separated from the company.

Cincinnati Bell is attempting to expand the availability of its Fioptics fiber-to-the-home products suite, which provide high-speed Internet, entertainment, and voice services to subscribers. The Wireline segment of the company remains the prime growth driver based on its strong Fioptics business.

Its venture into new projects and the spin-off of CyrusOne into a separate entity are expected to work in favor of Cincinnati Bell and aid earnings growth going forward.

On the other hand, Leap Wireless (LEAP) reported an abysmal second quarter, which revealed a widening of losses and misses on both top and bottom lines. It suffered a net subscriber loss with an attrition rate of 4.3% as compared to 4.4% in the year-ago quarter. No business can perform robustly with a fall in customer base but Leap shareholders won't be affected much probably as AT&T intends to acquire it.

Reported net loss in the recent quarter turned out to be $163.1 million as compared with a net loss of $41.6 million in the prior-year quarter. Adjusted loss per share of $1.15 was considerably higher than consensus estimates of $0.94. Quarterly revenue of $731.5 million was 7% below the year-ago quarter and missed consensus estimates of $736 million.

The prepaid market in the U.S. is becoming increasingly competitive with players like Boost Mobile and Virgin Mobile. With one-third of U.S. mobile phone connections expected to be prepaid by May 2016, AT&T decided to consolidate its position in the market by announcing that it will be acquiring Leap.

Final words

CenturyLink has struggled this year but it looks like the situation in its end markets might be improving. The company has also made some moves to increase speed and its latest acquisitions look promising. Although a dividend cut earlier this year was a blemish, CenturyLink still yields an impressive 6.5%. The stock is trading near 52-week lows and adventurous investors might think of initiating a long position.

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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