UPDATE: UBS Downgrades Windstream (WIN) to Sell

(Updated - July 13, 2015 8:37 AM EDT)

UBS downgraded Windstream (NASDAQ: WIN) from Neutral to Sell with a price target of $5.00 (from $11.50). Analyst Batya Levi expects difficult trends to continue, and said its dividend was in question.

"Windstream shares have been pressured by dividend-coverage concerns, its relationship with CSAL and worsening fundamentals. We expect the declining trend in revenues and EBITDA to continue to weigh on shares. We believe WIN's remaining CSAL stake is key to covering the dividend and a lack of improvement in the underlying fundamentals could push the payout back to unsustainable levels. While this could be addressed with a lower capex level, we believe capital intensity needs to remain at mid-teens to drive better revenue trends. Meanwhile, we estimate WIN's leverage will be ~3.6x (after the CSAL stake) vs. mgmt's target for 3.0x," said Levi.

"We expect 2Q revenues to decline 3.4% annually to $1.42B, vs. a 3.2% fall seen in 1Q/4Q. This reflects some stability on a sequential basis, largely driven by the Consumer/SME segments while Enterprise/Wholesale continue to fall. We expect EBITDA to fall 10.4% annually to $487M, equating to 34.2% margins, down 280 bps yoy. We expect management to maintain 2015 guidance for revenues flat to down 4.0% (UBSe -2.8%), 34-34.5% EBITDA margins (UBSe 34.3%) and $825-875M in capex (UBSe $850M). Our EPS revisions reflect 1-2% lower revenues/EBITDA offset by higher book taxes," added the analyst.

For an analyst ratings summary and ratings history on Windstream click here. For more ratings news on Windstream click here.

Shares of Windstream closed at $5.68 yesterday.

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