Windstream Earnings: An Early Look

Earnings season is in full swing, with huge numbers of companies having already given their latest numbers to investors, and Windstream (NASDAQ: WIN  ) is about to release its quarterly earnings report. The key to making smart investment decisions with stocks releasing their quarterly reports is to anticipate how they'll do before they announce results, leaving you fully prepared to respond quickly to whatever inevitable surprises arise. 

Many see rural telecom as a no-growth business without good future prospects, but Windstream is doing its best to change that perception. But will the company grow enough to support its huge dividend yield? Let's take an early look at what's been happening with Windstream over the past quarter and what we're likely to see in its quarterly report next Tuesday.

Stats on Windstream

Analyst EPS Estimate

$0.13

Change From Year-Ago EPS

(32%)

Revenue Estimate

$1.55 billion

Change From Year-Ago Revenue

28%

Earnings Beats in Past 4 Quarters

0

Source: Yahoo! Finance.

Will Windstream keep investors connected?
Analysts have stuck to their guns in their views on Windstream over the past several months, keeping earnings-per-share estimates stable for the just-ended quarter. For 2013, though, they've pulled back on earnings by $0.03 per share, and although the stock has climbed 14% since mid-November, its 7% pullback yesterday raises new concerns for the company and the entire industry.

Windstream has managed to keep its double-digit dividend intact despite the cash-flow pressures of having to finance its acquisition of PAETEC in 2011 with substantial amounts of high-yield debt. So far, the company insists that it has the cash flow to cover financing costs and its dividends, even though traditional measures of free cash flow suggest an unsustainably high payout ratio.

But just yesterday, rival CenturyLink (NYSE: CTL  ) shook the industry when it cut its dividend by more than 25%. Even though Windstream announced last week that it would keep its own quarterly payout stable at $0.25 per share, investors increasingly fear that the dividend is unsustainable, which sent Windstream's stock downward in sympathy.

The real question remains the same as it has been for some time: whether Windstream can evolve beyond its declining landline and traditional telecom service business in favor of higher-margin broadband, wireless, and business services. So far, selling high-speed Internet access has been lucrative for the company, but finding money for necessary capital expenditures will be tough, especially given the huge advantage that major telecoms AT&T and Verizon have in competing for business customers across the nation. Similar cash-flow pressures have already forced Frontier Communications (NASDAQ: FTR  ) to cut its dividend twice in recent years, even as Windstream has held its own stable. Investors haven't gotten the same reassurance from Frontier that it won't implement cuts when it releases earnings later next week.

In Windstream's earnings report, investors should look first at whether Windstream backs off from its assertion last week that it would keep its dividend stable. Any signs of weakening cash flow could further exacerbate the stock's losses.

Will the rural telcos make it?
When it comes to dividend yields, you won't find many higher than Frontier Communications. While its juicy dividend is tempting, every Frontier investor has to understand that it's not a sure thing. A huge acquisition has transformed the company forever. Will the move bear fruit, or are investors destined for another disappointing dividend cut? In this premium research report on Frontier Communications, we walk you through all of the key opportunities and threats facing the company. Better yet, you'll receive a full year of updates to boot. Click here to learn more.

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