CenturyLink, Inc. (CTL) shares fell more than 3% during Tuesday's session after Morgan Stanley downgraded the stock from Overweight to Equal Weight and lowered its price target from $16.00 to $14.80 per share. The new price target still represents a 13% premium to Tuesday's closing price. The downgrade follows Evercore ISI's initiation of CenturyLink stock with an Underperform rating last week and helped precipitate a breakdown from key support levels this week.
Analyst Simon Flannery has become more cautious on the telecom services industry due to heightened wireless competition, regulatory concerns, and elevated leverage in a space with secular headwinds. While CenturyLink stock remains attractively priced on some metrics, Flannery believes that transformational gains will be around two-thirds, realized exiting 2020 as revenue declines continue and its dividend yield spread to AT&T Inc. (T) is "tight" following its recent outperformance.
From a technical standpoint, the stock broke down from trendline support and the 50-day moving average at around $13.45. The relative strength index (RSI) fell near oversold levels with a reading of 33.56, but the moving average convergence divergence (MACD) remains in a strong bearish downtrend. These indicators suggest that the stock could see some near-term consolidation, but the intermediate- and long-term trends remain decidedly bearish.
Traders should watch for consolidation below trendline resistance and the 50-day moving average at around $13.45 before a potential move lower toward the 200-day moving average at $11.70 or trendline support at around $11.00 over the intermediate to long term. If the stock rebounds back above these key levels, traders could see a move to retest highs of around $15.00, although that scenario appears less likely to occur given the bearish sentiment.
The author holds no position in the stock(s) mentioned except through passively managed index funds.