Shares of Louisiana-based telecom CenturyLink (LUMN 2.29%) fell 12.8% in 2019, according to data from S&P Global Market Intelligence. The bulk of the decline occurred in the spring, followed by relative peace and quiet in the summer and fall.
There was nothing terribly wrong with CenturyLink's earnings report in February -- the company met Wall Street's revenue estimates and beat analysts' consensus projections on the bottom line. However, the stock took its first big step down of 2019 the next day, because CenturyLink also slashed its quarterly dividend from $0.54 to $0.25 per share.
Management explained that the reduction wasn't due to any critical need for extra cash, but that it wanted to speed up the rate at which it was paying down its debt, with the goal of bringing CenturyLink's leverage to less than 3.25 times adjusted EBITDA earnings. That argument went over like a lead balloon with investors, triggering a slow slide in CenturyLink's share prices over the next couple of months. The slide was accelerated by a delayed 10-K filing, and didn't stop until management announced that CenturyLink was looking for a buyer for its consumer services business. By the middle of May, the stock had dropped 30.6% year to date.
That low point didn't exactly mark the start of a turnaround, but CenturyLink's stock price largely followed the trends of the broader market for the rest of the year.
CenturyLink should be able to hit its debt-reduction target in three years, according to management, but that forecast assumes that its adjusted EBITDA profits rise over the next few years. The company's leverage ratio, which was raised by the massive buyout of Level 3 Communications in 2017, stood at 4.0 times adjusted EBITDA at the time of the dividend reduction.
It was good to finally see the company grab the debt monster by the horns, even if it had to steeply cut its payouts to do so. I still find it difficult to get excited about this stock, even its current bargain-bin valuations of 9.2 times forward earnings and 1.0 times book value. The stock is priced for utter disaster and nearly 10% of the shares are still sold short. I wouldn't touch this ticker with a "buy" button on a 10-foot pole under these risky circumstances. There are simply too many better investment ideas out there today.