(By R. Chadrasekaran) Telecom services provider Windstream
) is likely to see strong second half performance in 2012 which is likely to benefit from restructuring announced in May and intended integration of savings from its previous PAETEC acquisition. These costs savings have the potential to drive 1.5 percentage points higher EBITDA in the second half of 2012 compared to second quarter expectations.
The company is scheduled to announce its Q2 earnings on August 9. Wall Street is expecting Windstream to earn 13 cents a share and revenues of $1.54 billion, while S&P Capital IQ is predicting 14 cents a share, which was reduced by a cent from its earlier expectations.
The margins are likely to be in consistent with the first quarter results, and EBITDA are estimated to be $595 million. While business revenues may have increased, the company is likely to have witnessed stable access line count compared to its rivals. A modest broadband addition is predicted to have helped the company, which already had 44 percent penetration rate of its access line base.
The stock is an underperformer with an approximate loss of 14 percent during the last three months in comparison to a fractionally lower S&P500 index. Most importantly, shares of Windstream performed poorly in the telecom services sector versus its peers. This has been attributed to a first quarter earnings miss on account of wholesale loss in the PAETEC business.
Interestingly, S&P Capital IQ equity analyst Todd Rosenbluth commented, "The stock trades at an enterprise value/EBITDA multiple of 6X our 2013 EBITDA estimate, a 3% premium to Telecom peers. This is the narrowest premium in more than 2 years. In our view, WIN warrants a greater premium as we believe its fundamentals are stronger. Our 12-month target price is $13, equal to an EV/EBITDA multiple of 6.7X."
Looking at the dividend track record of the Windstream, it has been paying 25 cents quarterly dividend since it was formed in 2006. The company's share is the third biggest dividend yield with latest yield of about 10 percent and the average five year dividend yield of 9.3 percent. Though there is a concern among the investors that the company might cut its dividend in line with its peers, S&P Capital IQ analyst does not foresee any reduction in dividend payout. This is due to the fact that the company's cash flow is strong, and Windstream is committed to annual pay out of $1.00 a share as dividend.
Meanwhile, analyst Todd Rosenbluth is projecting Windstream to earn 60 cents a share on revenues of $6.25 billion for 2012 and 68 cents a share on revenues of $6.28 billion for 2013. This is in comparison with Street consensus of 53 cents a share on revenues of $6.19 billion for 2012 and 59 cents a share on revenues of $6.21 billion for 2013.
S&P Capital IQ maintained its Strong Buy opinion on Windstream shares with a 12-month price target of $13.00. The stock closed Friday's regular trading at $10.03.