Our CenturyLink Stock Prediction In 2019 (Buy or Sell?)

Remember those intoxicating days of phenomenal growth in the telecommunications sector? The U.S. wireless industry has matured and many investors are suffering a hangover.

The telecom space still suffers from the after effects of a multi-year price war that devastated profit margins. These days, the imperative among telecoms is to sacrifice margins for market share. Telecoms also face brutal competition from cable giants who want to encroach on their turf.

Through mega-mergers, some telecoms are now multi-media players that are well-poised for growth. Others have been knocked back on their heels and continue to struggle.

Are there any telecom bargains out there with healthy growth prospects? One telecom stock that’s inexpensive relative to its peers is CenturyLink (NYSE: CTL).

Is CenturyLink a value play… or a value trap? Let’s find out.

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What Is CenturyLink?

CenturyLink (market cap: $13 billion) is a telecommunications firm that serves residential, business, wholesale, and governmental customers in the U.S. and internationally. The company operates in two segments, Business and Consumer.

Based in Monroe, Louisiana, CenturyLink offers virtual private networks (VPNs); Ethernet services; Internet protocol (IP) services; Prism TV service; satellite digital television; content delivery networks (CDNs); and other broadcast services.

CenturyLink also offers voice and managed services encompassing network, hosting, cloud, and information technology. The company has 4.8 million broadband subscribers.

How Has CenturyLink Stock Performed?

CenturyLink stock has consistently posted a dismal performance that lags the broader market as well as its peers.

  • Over the past 12 months, CTL has lost 25.6% and the S&P 500 has gained 8.0%.
  • Over the past two years, CTL has lost 50.8% and the S&P 500 has gained 19.5%.
  • Over the past five years, CTL has lost 64.2%, the S&P 500 has gained 50.9%, and the benchmark SPDR S&P Telecom ETF (XTL) has gained 25.4%.

How Has CenturyLink Performed In 2017/2018?

  • In 2017, CTL lost 34.2% and the S&P 500 gained 19.4%.
  • In 2018, CTL lost 11.3% and the S&P 500 lost 7.5%.

Who Are CenturyLink’s Rivals?

AT&T (NYSE: T)

With a market cap of $225.9 billion and based in Dallas, AT&T operates through four segments: Business Solutions, Entertainment Group, Consumer Mobility, and International.

The Business Solutions segment offers wireless services, legacy voice, wireless equipment, and other services to businesses, governments, and individuals. The Entertainment Group provides video entertainment and audio programming channels to approximately 25 million subscribers, as well as broadband and Internet services to 13.5 million residential subscribers.

Consumer Mobility offers postpaid and prepaid wireless voice and data communications services to consumers. The International segment offers digital television services under the DIRECTV and SKY brands throughout Latin America. This segment also offers postpaid and prepaid wireless services in Mexico to about 15 million subscribers under the AT&T and Unefon brands.

Read This Story: Our AT&T Stock Prediction In 2019 (Buy or Sell?)

Verizon (NYSE: VZ)

Verizon (market cap: $244 billion) provides telecommunications and entertainment products and services worldwide. The company provides wireless voice and data services and various Internet of Things products and services, as well as Internet, TV, and voice services under the Fios brand name.

Verizon is known for consistently healthy investments in new technologies, as underscored by its emphasis on the transition from 4G to 5G.

The company’s wireline segment offers traditional circuit-based network products and services. Based in New York City, this telecom giant boasts 116.3 million retail connections.

Read This Story: 7 Point Verizon Dividend 2019 Guide (*Expert Analysis*)

T-Mobile US (NSDQ: TMUS)

T-Mobile is the brand name used by the mobile communications subsidiaries of the German telecommunications company Deutsche Telekom AG (OTC: DTEGY).

T-Mobile US (market cap: $58.7 billion) provides mobile communications services to 79.7 million customers in the U.S. Puerto Rico, and the U.S. Virgin Islands. Based in Bellevue, Washington, the company also provides wireless devices, including smartphones, tablets, and other mobile devices, as well as accessories.

T-Mobile seeks a merger with struggling rival Sprint (NYSE: S) and executives from both firms are trying to convince regulators and lawmakers into approving the $26 billion proposal.

Mega-merger activity continues apace in the telecommunications and media landscape, with only a handful of giants now controlling most of what we see and hear. That consolidation won’t abate anytime soon, as media giants seek economies of scale and try to stay ahead of fast-moving digital innovations.

Will CenturyLink Stock Go Up In 2019 (Should You Buy)?

Consolidation and the relentless pace of innovation has put considerable pressure on telecoms. One solution has been for telecoms to obtain larger markets and more innovative technology by gobbling up rivals or complementary tech firms. That’s the route CenturyLink has taken.

In 2017, CenturyLink completed its $34 billion takeover of Level 3 Communications, for 200,000 miles of fiber optic cable.

According to CenturyLink management, the goal of the Level 3 buyout is to offer a broader product portfolio of network solutions and advanced IT services; deliver these solutions over a large-scale, fiber-rich global network; and enhance broadband speed.

This brief video provides insights into CenturyLink’s strategic direction.

CenturyLink’s 12-month forward price-to-earnings ratio (FPE) is 9.4, higher than the FPE of struggling AT&T (8.4), and lower than Verizon (12.5), T-Mobile (15.4), and the S&P 500 (17.5). Ostensibly, CenturyLink is an attractive bargain.

But there’s a good reason why the stock is cheap.

Will CenturyLink Go Down In 2019 (Should You Sell)?

CTL could have further to fall.

For starters, CenturyLink’s balance sheet is weak. The company only has $488 million in cash on hand but total debt of $36 billion. The debt-to-equity ratio of 181.87 is worrisome.

With the Level 3 deal, CenturyLink seems to have bitten off more than it can chew and the economies of scale that it had hoped for still haven’t materialized.

It hasn’t helped matters that CenturyLink recently told the Securities and Exchange Commission that it will be late in filing its annual report. CenturyLink discovered accounting anomalies stemming from its 2017 acquisition of Level 3 Communications.

In addition to a string of disappointing quarterly earnings results, CenturyLink this year cut its dividend, a move that understandably sent investors running for the exits. CTL’s dividend yield has gone from about 14%, which was absurdly high and unsustainable, to 8.2%.

Overall CenturyLink Forecast And Prediction For 2019

CenturyLink’s stock will probably continue its slide this year. When it bought Level 3, CenturyLink already struggled under a large debt burden. The deal only made CTL’s financial metrics worse.

Wireless companies need to invest in new technologies to stay competitive, as users demand blazing speeds. The adoption of next-generation 5G adds pressure on companies to invest in infrastructure.

When it comes to making investments to keep up with strong rivals such as Verizon, CenturyLink’s deteriorating financials put it at a disadvantage. CenturyLink’s huge dividend cut should be all the warning you need.

Avoid this chronically under-performing stock; a turnaround doesn’t appear to be in the cards.

John Persinos is the managing editor of Investing Daily.