Is CenturyLink a buy close to a historic low?

Mb (0) – sm Mt (0.8em) – sm "type =" text "content =" Income pressure in traditional technologies, such as Lower prices for fiber optic wholesalers led to lower revenues, which, combined with high debt, led investors to flee. dividend cut during the first quarter teleconference, which led many investors looking for returns for sale. "data-reactid =" 12 "> Pressures on revenues from traditional technologies, such as fixed telephone lines and lower prices for wholesale fiber sales, led to lower revenues and surprised investors with a reduction in the dividend during the first quarter conference call, which has led many investors looking for yield to sell.

And yet, no one can deny that the stock is cheap. CenturyLink's valuation has declined to approximately five times its enterprise value over EBITDA and approximately 3.5 times its price compared to free cash flow, according to management's forecasts for 2019.

So, should you be greedy when everyone is scared, or just scared?

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Source of the image: Getty Images.

Current fears

In the first quarter, CenturyLink's revenues were down 5% from the previous year as losses were split between the business and consumer categories. Management also stated that it plans to divest its mainstream business, with the current team focusing on businesses, where CenturyLink generates approximately 75% of its revenue. The sale of consumer businesses could reduce the company's debt by $ 35 billion, while reducing revenues and EBITDA.

Finally, investors may also be concerned that the Company generated only free cash flow of $ 315 million in the first quarter, down from $ 941 million in the same quarter of the previous year. .

Lining of money

So, are there any silver liners that bulls can hang on to? The answer is yes, and in fact, there are several.

<p class = "canvas-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "1. Adjusted EBITDA increased in line with the widening of margins:& nbsp; Although revenues decreased by approximately 5%, CenturyLink's adjusted EBITDA grew up 3.7%. The company has been successful in finding synergies after its creation. integration with Level 3 Communications, purchased by CenturyLink in 2017. Management lost $ 128 million in costs in the first quarter and increased EBITDA margins to 40.1%, up from 36.7% a year ago. In the future, the company expects costs of $ 800 to $ 1 billion over the next three years, although these ongoing savings involve non-recurring costs of $ 450 to $ 650 million. "Data-reactid =" 32 ">1. Adjusted EBITDA increased in line with the widening of margins: Although revenues decreased by approximately 5%, CenturyLink's adjusted EBITDA grew up 3.7%. The company has managed to find synergies following its integration with Level 3 Communications, acquired by CenturyLink in 2017. Management lost $ 128 million in costs in the first quarter and increased EBITDA margins to 40.1%, up 36.7% a year since. In the future, the company expects to eliminate $ 800 to $ 1 billion in operating costs over the next three years, although these ongoing savings involve non-recurring costs ranging from $ 450 to $ 500,000. $ 650 million.

<p class = "canvas-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "2. Management has reiterated its forecasts for the whole year:& nbsp; Although the first quarter results were a little disappointing, especially in terms of free cash flow, management reiterated its full-year guidance of $ 9.0 to $ 9.2 billion. EBITDA and $ 3.1 to $ 3.4 billion in free cash flow. "data-reactid =" 33 ">2. Management has reiterated its forecasts for the whole year: Although the first quarter results were a little disappointing, particularly with respect to free cash flow, management has reiterated its full-year guidance of $ 9.0 billion to $ 9 billion. $ 2 billion and $ 3.1 billion to $ 3.4 billion in free cash flow.

Although the company's free cash flow decreased during the quarter, it was largely due to the timing of working capital payments. In addition, the first quarter saw higher than normal bonuses that will not be repeated later in the year. Management also invested approximately $ 126 million more in capital expenditures than it had in the prior year quarter, and this increase in capital expenditures is expected to result in revenue growth or a reduction in capital expenditures. costs.

<p class = "canvas-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "3. Reimburse the debt with a discount:& nbsp; The main reason why CenturyLink reduced its dividend at the beginning of the year was to pay off its debt. The company plans to repay about $ 2 billion this year and has just announced a $ 575 million takeover bid for some of its highest interest debt. All of these bonds trade at a price equal to par, and CenturyLink offers, although a premium over current prices, remain generally below par, with some bids representing only $ 885 per $ 1,000 face value. This means that CenturyLink could repay more than $ 2 billion in debt while spending only $ 2 billion in cash if the bondholders agreed. "Data-reactid =" 35 ">3. Reimburse the debt with a discount: The main reason why CenturyLink reduced its dividend at the beginning of the year was to pay off its debt. The company plans to repay about $ 2 billion this year and has just announced a $ 575 million takeover bid for some of its highest interest debt. All of these bonds trade at a price equal to par, and CenturyLink offers, although a premium over current prices, remain generally below par, with some bids representing only $ 885 per $ 1,000 face value. This means that CenturyLink could repay more than $ 2 billion in debt while spending only $ 2 billion in cash if the bondholders agreed.

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