Windstream Holdings Inc. is a hold

Aug 27th, 2014 – Comment

Hi Lou Just curious what your thoughts are on Windstream? There’s been a lot of talk that they need to cut their dividend but the company insists they have enough free cash flow to support it going forward. They are carrying a lot of debt as well but it appears to be manageable while rates […]


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Hi Lou

Just curious what your thoughts are on Windstream? There’s been a lot of talk that they need to cut their dividend but the company insists they have enough free cash flow to support it going forward. They are carrying a lot of debt as well but it appears to be manageable while rates remain low.

It’s had quite the run since mid February. Any thoughts on if this uptrend will continue or is it running out of gas?

Thanks

Ken

 

Hey Ken,

Thanks for the assignment. Windstream Holdings Inc. (WIN NASDAQ) is a regional telecommunications carrier in the United States that is working its way through a hostile environment characterized by intense competition, high debt levels, and a generous dividend payout ratio that is consuming available cash flow. The company has been growing their enterprise business which now represents over 70% of total sales while managing the decline of their traditional landline segment. WIN has built 26 data centres and plans on adding more to better compete for business customers.

In late July of 2014  the company announced that it intended to spin off certain telecommunications assets into a real estate investment trust which would move about $3 billion in debt off of WIN’s balance sheet and give them more room to manoeuvre in the market. Shareholders at the time of the spin off would then hold shares in WIN and a pro rata share of the REIT.

An inspection of the charts will inform my opinion on this stock.

 

 

 

WIN

The three-year chart provides an unobstructed view of the rapid ascent that started in February of 2014. The MACD and the RSI signalled a buy as the shares broke out of a range bound pattern with support at $6.75 and resistance at $8.00 that had been in place through most of 2013.

The spike high in July came as the company announced the REIT spin off. The stock wasn’t able to hold the 52-week high of $13.30 but for the last couple of weeks there has been some base building near $11.25.

 

 

 

 

 

 

WIN2

The MACD and the RSI on the six-month chart are not indicating that a new leg up is developing in the near term but the base building near $11.25 does suggest that investors are attracted to the dividend yield of 8.9% and the proposed REIT spinoff. The release of Q3 results is scheduled for November and will provide more information on how successful management has been in growing the business.

From the research conducted I would say that WIN has some challenges that need to be addressed regarding the competitive environment and on managing its debt. However there is no reason to shoot this running horse from a technical perspective. Hold your position but monitor how the stock progresses as we get closer to the Q3 announcement and the REIT spinoff.

Make it a profitable day and happy capitalism!

 

 

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