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Near an All-Time Low, Is CenturyLink a Buy?



<p class = "canvas-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "2019 has not been kind to CenturyLink (NYSE: CTL) Investors Of course, none was 2018. Or 2017. Since reaching maximums above $ 40 in 2015, the stock has been in a slow and steady decline to just under $ 10 today. "Data-reactid =" 11 " > 2019 has not been kind to CenturyLink (NYSE: CTL) Investors Of course, neither was 2018. Or 2017. Since it peaked at more than $ 40 in 2015, stocks have been in a slow and steady decline to just under $ 10 today.

<p class = "canvas-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "Revenue pressures on legacy technologies such as voice and telephone lines The decline in wholesale fiber prices has led to lower revenues, combined with a high debt burden, which has caused investors to flee.The company also surprised investors with a dividend cut in his first quarter phone conference, leading many performance seekers to sell. "data-reactid =" 12 "> Revenue pressures on legacy technologies, such as fixed voice lines and declining prices of wholesale fiber sales, have led to a decline in revenues. of debt, has caused investors to flee.The company also surprised investors with a dividend cut in its first quarter phone conference, leading many performance seekers to sell.

And yet, no one can deny that the action is cheap. The CenturyLink valuation has plummeted to approximately five times its business value in EBITDA, and only about 3.5 times the price in free cash flow, according to the administration's projections for 2019.

So, should you be greedy when everyone is afraid, or just afraid?

A man in a suit nervously looking at the screen of a laptop.

Image source: Getty Images.

Current fears

In the first quarter, CenturyLink revenues fell 5% year-on-year, with losses distributed in both the business and consumer categories. Management also said it was exploring a sale of its consumer businesses, since the current team is focused on the business side, where CenturyLink gets approximately 75% of its revenue. The sale of the consumer business could make a dent in the company's $ 35 billion debt burden, although it would also reduce revenues and EBITDA.

Finally, investors may also be concerned that the company only had $ 315 million in free cash flow in the first quarter, down from $ 941 million in the same quarter of the previous year.

Silver coatings

So, are there silver liners that bulls can cling to? The answer is yes, and in fact, there are enough.

<p class = "canvas-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "1. Adjusted EBITDA grew as margins expanded:& nbsp; Although revenues decreased a not-so-large 5%, the adjusted EBITDA of CenturyLink grew up 3.7%. The company has done a good job in finding synergies after its Integration with Level 3 Communications., which CenturyLink purchased in 2017. The administration eliminated $ 128 million in costs in the first quarter alone, and expanded EBITDA margins to 40.1%, an increase of 36.7% a year ago. In the future, the company expects to take $ 800 million to $ 1 billion in business costs in the next three years, although these permanent savings will incur unique costs of $ 450 million to $ 650 million. "Data-reactid =" 32 ">1. Adjusted EBITDA grew as margins expanded: Although revenues decreased by 5% not so large, the adjusted EBITDA of CenturyLink grew up 3.7%. The company has done a good job in finding synergies after its integration with Level 3 Communications, which CenturyLink purchased in 2017. The administration eliminated $ 128 million in costs in the first quarter alone, and expanded EBITDA margins to 40.1% , an increase of 36.7% per year. make. In the future, the company expects to draw from $ 800 million to $ 1 billion in business costs in the next three years, although these permanent savings will incur unique costs of $ 450 million to $ 650 million.

<p class = "canvas-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "2. Management reiterated the year-round guide:& nbsp; Although the results of the first quarter were a bit disappointing, especially with regards to free cash flow, management reiterated its annual guidance of $ 9,000 million to $ 9,200 million in EBITDA and $ 3,100 million to $ 3,400 million in cash flow. free ". data-reactid =" 33 ">2. Management reiterated the year-round guide: While the results of the first quarter were a bit disappointing, especially with regards to free cash flow, management reiterated its annual guidance of $ 9,000 million to $ 9,200 million in EBITDA and from $ 3,100 million to $ 3,400 million in flow of free cash.

Although the company's free cash flow was reduced in the quarter, much of that was due to the date of working capital payments. In addition, the first quarter saw higher than normal bonuses that will not be repeated later in the year. Management also invested about $ 126 million more in capital expenditures than in the previous year's quarter, and this increase in capital expenditures should lead to an increase in revenues or a decrease in costs in the future.

<p class = "canvas-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "3. Payment of the debt with a discount:& nbsp; The main reason why CenturyLink reduced its dividend earlier this year was to pay the debt. The company plans to pay around $ 2 billion this year, and has just announced a public offering of $ 575 million for some of the company's highest interest debts. All these bonds are traded at a discount at par, and CenturyLink offers, while at a price higher than current prices, are still mostly below par, with some offers as low as $ 885 for $ 1,000 of nominal value. That means that CenturyLink could pay more than $ 2 billion in debt and spend only $ 2 billion in cash, in case the bondholders accept it. "Data-reactid =" 35 ">3. Payment of the debt with a discount: The main reason why CenturyLink reduced its dividend earlier this year was to pay the debt. The company plans to pay around $ 2 billion this year, and has just announced a public offering of $ 575 million for some of the company's highest interest debts. All these bonds are traded at a discount at par, and CenturyLink offers, while at a price higher than current prices, are still mostly below par, with some offers as low as $ 885 for $ 1,000 of nominal value. That means that CenturyLink could pay more than $ 2 billion in debt and spend only $ 2 billion in cash, if the bondholders accept.

<p class = "canvas-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "4. Initiates are buying:& nbsp; Both in March and very recently in May, executives bought a significant amount of shares. CEO Jeff Storey and CFO Neel Dev bought shares on the open market in early March at prices just under $ 12, and then on May 23 at prices just under $ 10. In addition, two others Board members, President Harvey Perry and Steven Clontz, also bought shares at similar times and prices. "Data-reactid =" 40 ">4. Initiates are buying: Both in March and very recently in May, employees bought a significant amount of shares. CEO Jeff Storey and CFO Neel Dev bought shares on the open market in early March at prices just under $ 12, and then on May 23 at prices just under $ 10. In addition, two others Board members, President Harvey Perry and Steven Clontz, also bought shares at similar times and prices.

A plant stock

<p class = "canvas-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "What would really change CenturyLink's actions is if the revenue Stabilizes or starts going in the other direction, Storey was actually installed by an activist investor Two years ago, he referred to the CEO as the "Tom Brady" of the telecommunications industry. However, Storey inherited a difficult task, with a company that has many inherited businesses in decline. He also seems to have lost a bit of credibility with investors when he cut the dividend after several quarters saying it was safe. "Data-reactid =" 43 "> What would really change the actions of CenturyLink is whether revenues stabilize or start to go in the other direction.Storey was installed by an investor activist two years ago, who referred to the CEO as the "Tom Brady" of the telecommunications industry, however, Storey inherited a difficult task, with a company that has a great legacy in decline, it also seems to have lost some credibility with investors when it cut the dividend after several quarters of say it was safe.

However, operationally, the company has exceeded its cost reduction goals and is currently investing in new products and services around the hybrid cloud and network security. Since the reward of these investments would be in the future, investors will not be able to see them and, therefore, they will not know if they happen while the inherited segments continue to weigh.

CenturyLink is undoubtedly a high risk action, but for those who are willing to take the step, its low price presents a substantial increase. Recent insider purchases suggest that management believes in their plan, so investors will have to decide whether they believe more in the opinion of the administration or Mr. Market.

<p class = "canvas-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = " More from The Motley Fool "data-reactid =" 46 "> More from The Motley Fool

<p class = "canvas-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "Billy Duberstein It owns shares of CenturyLink. Your customers may own shares of the aforementioned companies. The Motley Fool has no position in any of the mentioned actions. The Motley Fool has a disclosure policy."data-reactid =" 54 ">Billy Duberstein owns shares in CenturyLink. Your customers may own shares of the aforementioned companies. The Motley Fool has no position in any of the mentioned actions. The Motley Fool has a disclosure policy.


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