Macquarie Upgrades CenturyLink (CTL) to Outperform

February 11, 2014 6:34 AM EST
Get Alerts CTL Hot Sheet
Price: $25.26 --0%

Rating Summary:
    6 Buy, 15 Hold, 5 Sell

Rating Trend: Up Up

Today's Overall Ratings:
    Up: 29 | Down: 29 | New: 6
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Macquarie upgraded CenturyLink, Inc. (NYSE: CTL) from Neutral to Outperform with a price target of $33.00 (from $31.00) saying they don't believe a dividend cut is imminent and the company can unlock value through divestitures.

"Monroe, LA-based CTL is not nearly as popular as its West Monroe neighbors across the Ouachita River. The bears have been vocal on CTL over the past couple of months: the most recent market speculation, following AT&T’s FCF guidance, is that CTL will cut its dividend on Wed," analyst Kevin Smithen comments. "We disagree and believe the shares could rally if the dividend is sustained for at least the next two years. But share price performance is pressuring CTL's mgmt. and board to unlock value. Since June, CTL has returned -13% vs FTR’s17% and LVLT’s 71%. Over the past two years, CTL has returned -10% vs the S&P 33%. We expect ’14 EBITDA guidance to come in ~3% below consensus but don’t think this matters for the stock, as we feel this will increase the pressure on the board to act."

The analyst also feels fiber assets are not being utilized to their full potential and this could be unlocked thru partnerships. Weekend's press reports of another fixed-broadband deal for VOD further support their view that last-mile fiber assets will become increasingly more important for mobile operators.

Smithen thinks the key to a significant increase in the share price is to achieve LVLT's 7.7x EV/EBITDA multiple on what we expect to be over 56% of revenue in 2015. "We point out that FTR has shown an interest in acquiring more rural access lines and believe divestitures could be one scenario for CTL. In our view, all of the options we looked at have the potential to return 20+% to shareholders over the next year (see S/CTL and CTL/ LVLT models in figures 5 & 6) In the meantime, investors' are getting 7.5% to wait."

For an analyst ratings summary and ratings history on CenturyLink, Inc. click here. For more ratings news on CenturyLink, Inc. click here.

Shares of CenturyLink, Inc. closed at $28.93 yesterday.

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