EUR 850.00 For Business Accounts Only

Morningstar | CenturyLink Is Primed for Margin and Free Cash Flow Growth Despite Continually Deteriorating Sales

CenturyLink, in our view, owns a first-rate network in a second-rate industry. We think CenturyLink plays an integral role in making up the backbone of the Internet, but the company faces overcapacity, numerous competitors, and technological advances that cannibalize older, more lucrative services. CenturyLink’s fiber holdings make it one of the biggest communications infrastructure providers in the U.S., and its extensive network is matched by few other companies. While it is not the leader in the space, and we don’t expect it to close much ground on the top players, the growing importance of our connected world gives us confidence that CenturyLink’s network will remain vital. However, technological advances continually improve networking efficiency and enable less costly solutions to store and transport data. Consequently, even in CenturyLink’s enterprise segment, which accounts for roughly 75% of total revenue, we think top-line growth is likely to continue declining. CenturyLink’s business customers will continue to benefit from the ability to use shared, rather than private, networks and strides that require less bandwidth and enable more efficient routing. We view the consumer business as being just as challenged, as we project the movement from consumers away from landline phones will more than offset CenturyLink’s improving broadband network. In all, we think CenturyLink will be challenged to grow revenue.With our outlook for sales growth dim, we think enhancing profitability is CenturyLink’s best path to improved financial performance. We see the 2017 merger with Level 3 Communications as boosting that effort, given substantial overlapping costs. We also think the firm stands to benefit greatly from its ability to use Level 3’s deferred tax assets. In a challenging business, we think management has made the right strategic moves to enhance value. We see the focus on enhancing profitability as the proper move to make in its industry. While we don’t expect CenturyLink’s business to be a great performer, we think management has positioned it to remain viable for the long term, reducing the chances that it is on a slow path to fading away.