Investors Flee US Rural Incumbents
Windstream management's decision to eliminate its quarterly dividend, effective immediately, has prompted that company's stock to lose 27% of its value, continuing a trend of tough financial times for incumbent US telcos with large rural coverage areas.
Another incumbent telco, Frontier Communications Corp. (NYSE: FTR), had already lowered its dividend, and its stock is also suffering. And CenturyLink Inc. (NYSE: CTL) stock continues to slide after its lackluster quarter results were reported yesterday. (See Frontier Cuts Dividend, Seeks Salvation and CenturyLink Posts Lackluster Q2.)
Against that backdrop, CenturyLink merger partner Level 3 Communications Inc. (NYSE: LVLT)'s results look better, even though the company's earnings fell to $154 million or 42 cents per share, down from $156 million and 43 cents per share a year ago, on revenue of $2.06 billion that was essentially flat year-over-year. That was still above consensus analysts' predictions of $42 per share, as reported by Yahoo Finance. (See CenturyLink Splashes $34B on Level 3 Buy.)
But Level 3 shares were also falling slightly, down 4% after its earnings announcement.
The Windstream Communications Inc. (Nasdaq: WIN) management decision to cancel the company dividend comes after its stock price has been in steady decline since early March, falling from $7.50 a share to $3.72 yesterday. That prompted Windstream to announce it would re-allocate its capital to repurchase up to $90 million of its common stock, buying shares "opportunistically" through the first quarter of 2019 and paying down debt as well.
"Our equity is undervalued especially given our improved strategic direction with enhanced product capabilities, management talent additions and anticipated acquisition synergies of $180 million," Tony Thomas president and CEO said in a statement. "The elimination of the dividend along with the $90 million buyback program and delivering that will also occur and will create value for all our stakeholders. This is the right path for our company."
Windstream posted a $68 million second-quarter loss despite increased revenues of $1.49 billion, an increase of 10% year-over-year.
As noted in this Fierce Telecom story, financial research firm Cowen issued a report this month calling the last three consecutive quarters "the worst consecutive quarters in industry history" for CenturyLink, Frontier and Windstream, with share prices falling between 20% and 24% each quarter.
All three face the issues CenturyLink noted in its earnings call yesterday, namely that while they have launched newer "strategic" services such as SD-WANs, sales of those offerings aren't keeping up with declines in traditional service revenues.
And while CenturyLink is getting some cover from the impending Level 3 merger, the other two companies continue to take a Wall Street beating. Frontier is also coming under pressure from the difficulties its facing in integrating the Verizon properties it acquired and retaining those customers in the process.
Cowen isn't predicting recovery any time soon, and is already projecting a 5% decrease in share prices for the third quarter of 2017, which it may revise in light of today's news.
— Carol Wilson, Editor-at-Large, Light Reading