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Tickers in this Article: TU, NTT, CTL, VZ
On Jul 1, we maintained our Neutral recommendation on CenturyLink Inc. (CTL). The company is characterized by a reformed business structure, broadband expansion, faster fiber builds, better cloud computing services and penetration into new markets. However, the company faces several risk factors that may impede its operating performance going forward. The leading landline operator holds a Zacks Rank #3 (Hold).

Why Maintained?

CenturyLink has redesigned its operating segments to strengthen its grip on the market as well as remain fully committed to wholesale, hosting and consumer customers. The company is also expected to witness a slower rate of revenue decline owing to long-standing ties with clients by bundling integrated services, launch of new and attractive services, consistent technology upgrades, infrastructure enhancement, better usage of networks and profitable collaborations with major players such as Verzion Communications Inc. (VZ).

We appreciate CenturyLink’s commitment to take Prism TV service to additional markets and its investment in fiber-to-the-tower (FTTT) expansion. The company is also concentrating on developing the business base of its subsidiary Savvis, which has contributed immensely in uplifting the performance level of the former through its cloud computing and managed hosting solutions for enterprises.

Moreover, CenturyLink continues to expand data centers this year with a view to generate higher revenue in collocation as well as managed hosting and cloud services. The company is on track to enlarge its global foothold with the expansion of 10 data centers within 2013. We also applaud BCE’s efforts to generate higher shareholder returns through share repurchase.

However, certain headwinds such as deteriorating legacy voice and access revenues due to the loss of customers, federal regulations, labor issues and rapid changes in technology keep us sidelined.

The second and third quarters of 2013 have the Zacks Consensus Estimate for earnings pegged at 67 cents and 66 cents per share, respectively. This reflects year-over-year growth of 3.3% for the next quarter and 0.6% for the third.

Other Stocks

Companies operating within the telecommunication sector that are worth taking note of include Nippon Telegraph and Telephone Corporation (NTT) and TELUS Corporation (TU). While the former holds a Zacks Rank #1 (Strong Buy), the latter carries a Zacks Rank #2 (Buy).

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