We expect there are no longer held stocks in our portfolio than Centurylink. We owned it when it was little ole Centurytel and even owned Embarq before it was merged into the new Centurylink. When it was Centurytel we liked it, when it merged with Embarq we liked it even more. Add in the nice fold ins that have improved their cloud computing business and the aggressive tack they have displayed in going after broadband business either television or Internet service. ( As a side note here if you have not checked out the fabulous picture quality of their fiber optic service areas find one and go check it out, we have.) Anyway today's $9 plus slide in the stock price took us by surprise too. We have considered CTL one of our safer choices and are locked in at 2400 shares all be it at $38 per share. Ouch there.
Let's get some smarkyness out of the way first. Does one not just love the 6, count 'em 6, investment and bank stock advisory services that jumped in today and downgraded CTL. Note they did this AFTER the stock slid $9 and not before. Seems to me if any of these services were worth a damn they would have let their investors know to get out before the stock went down. If you are spending any hard cold cash paying for full service brokers or advisors right now either you are a fool or just like giving away your money away like Obama. If you are not willing to spend the time to do the research on your own go buy a mutual fund and save your cash.
Back to the subject at hand CTL and where we go from here. After some serious study today we remain convinced CTL is a good stock and good company going forward from here. The stock buyback might have been an effort to cover up some weakness in the revenue, but we see it as positive. Frankly CTL has refinanced about all their debt at the lowest levels possible in this low rate economy and the best use of cash flow here likely is buying back HIGHER cost shares of it's own stock. The buyback is about 10% of their outstanding shares which should help buoy the stock price. The reduction in dividend is a move ahead of the company going profit positive sometime in 2015. By profit positive I mean the company in 2015 will run out of depreciation and tax credits and actually begin to pay taxes on its cash flow. Maybe I am missing something but seems to me that is a nice thing to happen, make profits. Of course profits means dividends will then be subject to double federal taxes unlike now.
Cash flow remains good, revenue a bit weak but that is due to the loss of land line business. That land line business however is being replaced by broadband penetration and in many of CTL's markets you either get it from them or you do not get it. Where they have competition their price and quality is competitive with anyone. Besides many forget that land line business is subsidized by federal money which makes it not worth as much as many believe and subject to ending with federal deficits high.
Is anything safe anymore? You would figure a long life high dividend telecom would be, but maybe not. Not in the sense that we believe CTL got hit with the "emotional" sale today. We have opined in the past that this market is more driven by emotion than thinking and today we saw that in full effect for CTL. We like the stock going forward especially at the current $32 price.
We own CTL as noted as well as FTR another rural telecom.
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