Will CenturyLink Bounce Back This Quarter?

On Wednesday, CenturyLink (NYSE: CTL  ) will release its latest quarterly results. The key to making smart investment decisions on stocks reporting earnings is to anticipate how they'll do before they announce results, leaving you fully prepared to respond quickly to whatever inevitable surprises arise. 

Along with many telecom companies, CenturyLink was a favorite among dividend investors because of its high payout yield. But in February, the company cut that dividend, sending the shares plunging. Let's take an early look at what's been happening with CenturyLink over the past quarter and what we're likely to see in its report.

Stats on CenturyLink

Analyst EPS Estimate

$0.69

Change From Year-Ago EPS

1.5%

Revenue Estimate

$4.51 billion

Change From Year-Ago Revenue

(2.1%)

Earnings Beats in Past 4 Quarters

3

Source: Yahoo! Finance.

Will CenturyLink's earnings recover from last quarter's crisis?
In recent months, analysts have gotten more optimistic about CenturyLink's earnings prospects. They've added $0.03 per share to their estimates for the first quarter and $0.02 to their full-year 2013 consensus figures. The stock is down 7% since late January but has recovered much of the ground it lost after its February dividend cut.

For years, investors turned to lesser-known telecom companies for high dividend yields. Windstream (NASDAQ: WIN  ) and Frontier Communications (NASDAQ: FTR  ) became especially popular, as they focused on rural areas where consumers have fewer choices on where to get telecom services. Even though those businesses have been in slow decline, both Frontier and Windstream have made efforts to broaden their offerings to keep up with competition in broadband Internet and business services, with varying degrees of success. Windstream has managed to keep its dividend steady, but Frontier had to cut its dividend twice in recent years, sending its shares down substantially.

CenturyLink often gets put in the same class as Windstream and Frontier, but it's much larger than either of its two rivals. Moreover, it's been working hard to get out in front of the declines in residential landlines and other decaying businesses, as its acquisition of Savvis has helped it move forward in the cloud-computing space. Working with enterprises to stay up to date on their tech needs carries much better growth prospects than traditional telecom services, and CenturyLink's future hinges on its ability to compete with other players in that key niche and in other higher-growth areas.

CenturyLink has had some recent success with government contracts as well. Last month, the company got a 10-year contract with the Defense Department to provide network services for the agency's supercomputers across the country. With a value of as much as $750 million, the contract establishes CenturyLink's place as the third-largest telecom company in the U.S.

In CenturyLink's quarterly report, look for the company to report on its broader capital restructuring. With the company having restructured its debt and now looking to look at share buybacks rather than sending out as much cash in dividends, CenturyLink has the capacity to keep rebounding from its dividend-cut-inspired downturn.

CenturyLink's dividend yield has fallen substantially since its payout cut, but Frontier Communications still has a temptingly juicy dividend. But every Frontier investor has to understand that it's not a sure thing, and investors may eventually be 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. To learn more, click here and get your copy today.

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