Investors LOVE CenturyLink’s (CTL) big dividend which is currently yielding 8.1%. But this Zacks #1 Rank (strong buy) is also a value stock with a forward P/E of just 13.5.
CenturyLink is one of the largest telecommunications companies in the United States. It provides broadband, voice, wireless and managed services to consumers and businesses throughout the country.
CenturyLink is among the top 100 largest federal government contractors. It was recently selected by the General Services Administration to participate in Connections II, a $5 billion, multiple-award contract program expected to last 3 years and 3 months for federal government agencies to purchase telecommunications solutions.
CenturyLink Added 57,000 Internet Customers in Q3
On Nov 2, CenturyLink reported its third quarter results and met the Zacks Consensus Estimate of 34 cents.
Pro forma operating revenue actually declined 4.6% to $4.9 billion from $4.6 billion a year ago due to a decline in the “legacy” revenue.
However, the company had some bright spots. It saw an increase in growth in high-speed Internet, by adding 57,000 customers compared to 12,000 the quarter before, and growth in data services demand from business customers and data transport demand from wireless providers.
CenturyLink has been on an acquisition spree. In the quarter, it completed the acquisitions of Qwest and Savvis. The Savvis acquisition, in particular, gives the company access to cloud technology.
Transaction and integration related fees on those two acquisitions and the Embarq acquisition totaled $109 million in the quarter.
Zacks Consensus Estimates Move Higher
The analysts liked what they heard in the quarter. For 2011, 2 estimates moved higher while 1 moved lower for the full year in the last 30 days. This pushed the Zacks Consensus Estimate up to $2.68 from $2.47 per share. That is in the company’s guidance range of $2.65 to $2.69.
For 2012, the Zacks Consensus Estimate has risen to $2.61 from $2.21 in the prior 30 days.
But if you’re looking for earnings growth, this is NOT the stock for you. Earnings are expected to fall 21% in 2011 and another 2.4% in 2012.
CTL is a Value Stock
CenturyLink shares were on a tear coming out of the Great Recession. But after peaking at a multi-year high in January of 2011, shares have tumbled ever since.
There is a lot of value, however. In addition to a P/E under 15, which is what I use as a cut-off for value stocks, it also has a price-to-book ratio of 1.0. A P/B under 3.0 usually indicates “value.”
And then there is the yield. Yes, the 8.1% yield IS correct. The company’s yield has averaged 5.4% over the last 5 years. Not too shabby.
With CenturyLink, value investors are trading earnings growth for dividend yield. Given what’s gone on the last few years, the dividend yield is looking mighty attractive.
Tracey Ryniec is the Value Stock Strategist for Zacks.com. She is also the Editor of the Turnaround Trader and Insider Trader services. You can follow her on twitter at traceyryniec.
