Here's Why CenturyLink Inc. Can Deliver More Upside

After appreciating 15% this year, CenturyLink can go higher.

Jun 23, 2014 at 6:32PM

Telecommunications provider CenturyLink (NYSE:CTL) is beating the market this year. The company's stock is up close to 15% so far in 2014, trumping the S&P 500's gain of 6.6%. However, CenturyLink's gain isn't as impressive as peers Frontier Communications (NASDAQ:FTR) and Windstream (NASDAQ:WIN), both of which have appreciated more than 20% in 2014. Despite this, CenturyLink's robust strategies indicate that the company should continue doing well going forward. Let's see why.

A string of positives
CenturyLink is witnessing rapid growth in products such as high-speed Internet, high bandwidth data services, Prism TV, and managed hosting services. As a result, its MPLS, Wavelength, and Ethernet services grew at a solid rate in the previous quarter. CenturyLink also added about 66,000 high speed Internet customers and more than 24,000 Prism TV customers during the first quarter.

Looking ahead, CenturyLink is focusing on a number of areas to make its operations more efficient and profitable. It is looking at business networking platforms, cloud and IP services, consumer broadband & video, fiber-to-the-tower, managed hosting, Prism TV expansion, and operating efficiency to drive growth. Essentially, CenturyLink is looking to transform itself from a traditional network communications company to an integrated provider of IP, enhanced network, cloud hosting and IT services.

It is providing customers and end users with integrated communications and IT solutions. Such a move will help CenturyLink achieve deeper market penetration as more customers are buying integrated services bundles instead of single services.

CenturyLink is focusing on enriching the customer experience by providing reliable and secure connectivity solutions. These should assist the growing bandwidth needs of businesses and wireless carrier customers. The company expects these services to deliver strong growth in the future. To achieve this goal, CenturyLink is making strategic investments in its marketing and sales team to aggressively promote these services. 

The company should benefit from a targeted marketing approach, various sales programs, and the continued investment in its broad range of products and services. For example, the company recently launched Managed Office. This package provides integrated network solutions, VoIP, email, and other key business applications. The company has witnessed strong early sales for this product, indicating its strong product development.

Additionally, the company is expanding its gigabit-capable passive optical networks, or GPON, and fiber deployments to commercial buildings. GPON offers fast Ethernet-quality speeds, allowing customers to enable their business with enhanced cloud facilities. CenturyLink is also deploying fiber for wireless towers, which should help it tap demand from wireless carriers for data backhaul.

Data center focus
Apart from this, CenturyLink is expanding its data center capacity and is undertaking various pricing initiatives to gain market share in the cloud. It had acquired Savvis, a provider of global cloud infrastructure and hosted IT solutions, to strengthen its offerings in the cloud. This acquisition has enhanced CenturyLink's managed hosting service that it provides to enterprises. As a result, it registered 13% growth in managed hosting in the previous quarter, and expects the growth to continue in the high teens. 

CenturyLink will be deploying its advanced cloud node to six of its data centers by the end of the year, beefing up its current tally of nine Tier 3 cloud nodes. This deployment will help the company maintain its competitiveness, as Tier 3 cloud nodes will increase operating efficiency and enhance IT and cloud enablement services.

The competitive landscape
CenturyLink's moves are important for the company as the telecom industry is highly competitive, and rivals such as Windstream and Frontier are trying to increase their presence.

Frontier, for example, made a smart move by acquiring the Connecticut operations of AT&T in December last year. The acquisition brought 415,000 data, 900,000 voice, and 180,000 video residential connections into Frontier's fold.  In addition, Frontier added a record 112,250 net broadband additions in 2013, while also reporting a 61% year-over-year jump in residential customer retention. This shows that Frontier's strategies are working well as the company is recording terrific growth in the customer base.

Meanwhile, CenturyLink will face stiff competition from Windstream in the data center space. Windstream is deploying data centers in order to enhance its cloud-based services, and it also expects to add 75,000 broadband customers this year. Windstream is making investments to increase its penetration in the rural market. It is focusing on fiber-to-the-X networks, or FTTX, and fiber-to-the-tower to enhance broadband coverage and surfing speed. 

The bottom line
CenturyLink's focus on new products and services, along with strong customer additions, are positive factors. In addition, the company is making its services more efficient, which should result in strong customer retention going forward. CenturyLink also carries a solid dividend yield of 5.80%. All of these factors make the company a good investment.

Warren Buffett's biggest fear is about to come true
Warren Buffett just called this emerging technology a "real threat" to his biggest cash-cow. While Buffett shakes in his billionaire-boots, only a few investors are embracing this new market which experts say will be worth over $2 trillion. It won't be long before everyone on Wall Street wises up, that's why The Motley Fool is releasing this timely investor alert. Click here to learn more about what's keeping Buffett up at night and the one public company we're calling the "brains behind" the technology.

Sharda Sharma has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. 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 Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

©1995-2014 The Motley Fool. All rights reserved. | Privacy/Legal Information