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A Crucial 2012 for Alaska Communications

With 2012 just beginning, now's a smart time to gauge how the stocks you're interested in are likely to do this year and beyond. By knowing what stock analysts and fellow investors expect from a stock, you'll be smarter about whether you should buy it for your portfolio -- or sell it if you already own it.

Today, let's take a look at Alaska Communications (Nasdaq: ALSK  ) . As I discussed last month, the Alaskan telecom provider of voice, broadband, and data services used to impress investors with a positively huge dividend yield. But the stock fell by 70% in 2011, and the company faces plenty of challenges going forward -- especially after a big dividend cut to end last year. Below, I'll take a closer look at what people expect from Alaska Communications and its rivals.

Forecasts on Alaska Communications

Median Target Stock Price $3.25
2011 EPS Estimate $0.00
2012 EPS Estimate $0.21
Expected Annual Earnings Growth, Next 5 Years 9%
Forward P/E 13.6
CAPS Rating (out of 5) ***

Sources: Yahoo! Finance, Motley Fool CAPS.

Will Alaska Communications stay connected in 2012?
Looking at the numbers, it seems analysts and investors aren't very optimistic about Alaska Communications. The target stock price is only about 14% higher than the current price -- not much of a premium compared to many analyst calls on other stocks. And despite a bump in earnings, analysts actually expect revenue to decline in 2012.

The biggest challenge that Alaska Communications will face comes from Verizon (NYSE: VZ  ) . If the company comes through with its intentions to enter Alaska's mobile market, it could steal away some of AlaskaComm's higher-margin business, leaving it in a much weaker position to try to sustain its dividend. On the other hand, AlaskaComm has said that it doesn't expect competition from Verizon until 2013. Even more interestingly, one analyst came up with a convincing case for why Verizon may actually want to buy out AlaskaComm in order to fight against AT&T (NYSE: T  ) , which has offered service in Alaska since its 2007 takeover of Dobson Communications.

Most alarmingly, AlaskaComm decided to cut its dividend by more than three-quarters two weeks ago, reducing its $0.215 quarterly payout to $0.05. At a new yield of 7%, the dividend now falls short of fellow rural telecoms CenturyLink (NYSE: CTL  ) and Frontier Communications (NYSE: FTR  ) . Moreover, those two companies have had much stronger revenue growth than AlaskaComm, which has only seen sales rise by 2% in the past 12 months.

For Alaska Communications to recover, it needs to get back to organic growth in its core services. Without that, its only viable exit strategy will be to seek an acquirer to buy it out.

Alaska Communications has had a lot of trouble, but we've got a stock that's in much better shape. In fact, it's in a position to profit from the next trillion-dollar revolution in mobile. Find out the name of this top prospect in the Motley Fool's brand-new special free report on the mobile industry. It's yours free, but don't wait -- act now.

Click here to add Alaska Communications to My Watchlist, which can find all of our Foolish analysis on it and all your other stocks.

Fool contributor Dan Caplinger doesn't own shares of the companies mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool has a disclosure policy.

Read/Post Comments (3) | Recommend This Article (4)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On January 09, 2012, at 4:44 PM, akakroke wrote:

    As far as I can tell, that analyst you're referring to with a link to his article has not been seen or heard from since. Very strange....

  • Report this Comment On January 09, 2012, at 5:05 PM, OpenEyes1 wrote:

    Its my understanding after talking with shareholder relations earlier this year, that Alaska Communications Group already supplies Verizon with service, in area's where Verizon doesn't have a presence.

  • Report this Comment On January 10, 2012, at 11:35 AM, akakroke wrote:

    Back in the late 1980s I was a participant in a class action suit against a company which was pushed, by of all people Bill Griffin on a now defunct cable financial station, for it's patented AIDS test (hard to remember exactly). I received $1,200 from that suit; my original investment was $4,000.

    Given the actions with ALSK beginning last October (12 million shares traded in a day or hours) and the article referenced in Dan's link here, I believe an investigation is in order and/or a class action suit. I just don't know how to initiate these things....


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