Citadel: The RLECs' High FCF Yields are Somewhat Misleading, In Our View
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Price: $11.00 --0%
Rating Summary:
5 Buy, 14 Hold, 10 Sell
Rating Trend: = Flat
Today's Overall Ratings:
Up: 12 | Down: 15 | New: 40
Rating Summary:
5 Buy, 14 Hold, 10 Sell
Rating Trend: = Flat
Today's Overall Ratings:
Up: 12 | Down: 15 | New: 40
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Citadel: The RLECs' high FCF yields are somewhat misleading, in our view
Citadel analyst said, "Based on our 2012 FCF estimates, CenturyTel (NYSE: CTL), Frontier (NYSE: FTR), and Windstream (NYSE: WIN) currently trade at 11-15% FCF yield, compared to about 9% for AT&T (NYSE: T) and Verizon (NYSE: VZ) - making the RLECs appear conservatively valued relative to their large diversified peers. We attribute some of this valuation discrepancy to differences in their growth prospects: With little to no wireless exposure, we believe investors demand greater yields from the wireline-centric RLECs. However, in addition, we also believe that the "standard" calculation of free cash flow - cash from operations less capex - presents a somewhat misleading picture for the RLECs. In our view, the standard calculation overstates the RLECs' free cash flow to equity holders ."
"We maintain our Add ratings on CTL (expect mgmt to raise synergy guidance) and WIN (better long-term prospects). We maintain our Neutral rating on FTR, despite the opportunity to realize significant synergies, as we believe the company continues to face the steepest revenue decline among the RLECs. We have slightly tweaked our estimates for CTL and FTR following reviews of their 10-Q filings. Our updated models are enclosed."
Citadel analyst said, "Based on our 2012 FCF estimates, CenturyTel (NYSE: CTL), Frontier (NYSE: FTR), and Windstream (NYSE: WIN) currently trade at 11-15% FCF yield, compared to about 9% for AT&T (NYSE: T) and Verizon (NYSE: VZ) - making the RLECs appear conservatively valued relative to their large diversified peers. We attribute some of this valuation discrepancy to differences in their growth prospects: With little to no wireless exposure, we believe investors demand greater yields from the wireline-centric RLECs. However, in addition, we also believe that the "standard" calculation of free cash flow - cash from operations less capex - presents a somewhat misleading picture for the RLECs. In our view, the standard calculation overstates the RLECs' free cash flow to equity holders ."
"We maintain our Add ratings on CTL (expect mgmt to raise synergy guidance) and WIN (better long-term prospects). We maintain our Neutral rating on FTR, despite the opportunity to realize significant synergies, as we believe the company continues to face the steepest revenue decline among the RLECs. We have slightly tweaked our estimates for CTL and FTR following reviews of their 10-Q filings. Our updated models are enclosed."
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