We initiate our coverage on Windstream Corporation (WIN) with a Neutral recommendation. The company is one of the leading rural telecom carriers in the US with approximately 2.93 million fixed access lines, 1.05 million broadband connections and roughly 323,000 video subscribers. Windstream is reportedly moving its listing from the New York Stock Exchange (NYSE) to the NASDAQ effective Dec 10, 2009.
 
Windstream, together with its various subsidiaries, provides local and long distance phone services and high-speed Internet services to residential and business customers across 16 states. The company also offers digital television service and a vast range of IP-based voice and data services as well as advanced phone systems and equipment to businesses and government customers.
 
Windstream has strategized to fend off cable and wireless competition by offering bundled services to its customers. The company is marketing “Triple-Play” services to its residential customers that combine voice (local/long-distance), video and broadband Internet services. As part of its customer retention effort, the company is offering attractive bundle promotion plans including the newly launched “Price for Life” service plan, which is delivering positive customer response.
 
Driven by sustained subscriber accretion, broadband Internet remains a significant growth engine for Windstream. Higher revenue from broadband Internet service continues to partly offset declines in legacy voice telephony business. Momentum for the company’s digital video service also remains strong, driven by aggressive promotional initiatives and increased market penetration of bundled services.
 
We believe acquisitions will spur growth, moving forward. Windstream continues to acquire smaller rural carriers to expand its customer base and coverage regions. These transactions are expected to be accretive to the company’s free cash flow and offer meaningful cost synergies.
 
We are also impressed by the company’s continued commitment to maximize return to investors in the form of attractive dividend payouts and sustained share repurchases, leveraging healthy free cash flow achieved through the ongoing cost cutting measures.
 
However, Windstream remains challenged by a steady decline in its fixed-line telephone business given the rapid customer migration to cellular and cable TV services. Wireless services from Tier-1 carriers such as AT&T (T) and  Verizon (VZ) and broadband services by leading cable operators such as Comcast (CMCSA) and Time Warner Cable (TWC) are impeding the company’s addressable market.
 
Sustained access line erosion continues to weigh on Windstream’s top-line. Moreover, the company operates in a highly regulated environment and faces a persistent decline in regulatory derived revenues. 
 
We are also concerned about Windstream’s significant debt exposure, which is further exacerbated by its acquisition binge. The company currently has just $290 million in cash and roughly $5.3 billion in total debt. Windstream is funding most of the acquisition with debt, which aggravates our concern.
Read the full analyst report on “WIN”
Read the full analyst report on “T”
Read the full analyst report on “VZ”
Read the full analyst report on “CMCSA”
Read the full analyst report on “TWC”
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