Author Topic: CTL - CenturyLink  (Read 95743 times)

petec

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Re: CTL - CenturyLink
« Reply #300 on: January 24, 2019, 08:23:09 AM »
FWIW Guggenheim downgraded today with a PT of $11, saying the company is poorly positioned, that price pressure is taking hold in enterprise, and that a dividend cut is a matter of when not if.


walkie518

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Re: CTL - CenturyLink
« Reply #301 on: January 24, 2019, 09:30:21 AM »
FWIW Guggenheim downgraded today with a PT of $11, saying the company is poorly positioned, that price pressure is taking hold in enterprise, and that a dividend cut is a matter of when not if.
I wonder how much of the negativity derives from the 911 outage?

I circled on previous outages and fines, it could be a multiple over what was previously paid, but my guess is (as awful as it sounds) this outage may result in a slap on the wrist; however, the size of the liability is a question mark so investors may be dumping for fear that it is much larger than the market anticipates? 

how much pressure could there be on the enterprise business? 

do you know how they justify the divi cut?  CTL had some balance sheet erosion over the last few years, but with Level 3 the firm is on better footing (though not good enough for Patel to stay? as a side, anyone know where he went?)

$3.9B - $3.1B (Capex) = $800m

CTL will borrow the rest to cover the $1.5B of dividends? 

Gugg is saying borrowing $700m is too much to bear until debt is further reduced? 

Funny enough, it might be cheaper for the company to borrow and buyback stock than it would be to pay down debt...cost of capital would decline faster...

petec

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Re: CTL - CenturyLink
« Reply #302 on: January 24, 2019, 10:05:21 AM »
FWIW Guggenheim downgraded today with a PT of $11, saying the company is poorly positioned, that price pressure is taking hold in enterprise, and that a dividend cut is a matter of when not if.
I wonder how much of the negativity derives from the 911 outage?

I circled on previous outages and fines, it could be a multiple over what was previously paid, but my guess is (as awful as it sounds) this outage may result in a slap on the wrist; however, the size of the liability is a question mark so investors may be dumping for fear that it is much larger than the market anticipates? 

how much pressure could there be on the enterprise business? 

do you know how they justify the divi cut?  CTL had some balance sheet erosion over the last few years, but with Level 3 the firm is on better footing (though not good enough for Patel to stay? as a side, anyone know where he went?)

$3.9B - $3.1B (Capex) = $800m

CTL will borrow the rest to cover the $1.5B of dividends? 

Gugg is saying borrowing $700m is too much to bear until debt is further reduced? 

Funny enough, it might be cheaper for the company to borrow and buyback stock than it would be to pay down debt...cost of capital would decline faster...

I don't have the piece so I don't know how the justify the divi cut but if they fear price erosion then presumably they see revenue decline as structural in which case cutting the divi is the only way to service debt.

Patel went to T-Mobile.

Sustainable FCF is likely around $3bn at the moment - more than sufficient to cover the dividend (which is $2.1bn). That's not the issue. And if they are successful with their cost transformation drive (as distinct from synergies) then the FCF upside is huge - a 10% cut in costs would add nearly 50% to FCF, even without revenue growth. The problem is that is the company is operationally and financially levered so if they can't cut costs to offset revenue declines then FCF drops dramatically. That's what the market is freaked about, and any note saying it's poorly positioned and is seeing pricing pressure is going to worsen concerns.

Equally if they can keep cutting costs until they can turn revenues around, then this thing is wildly undervalued. Absolutely no sustainable growth is priced in at this point.

walkie518

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Re: CTL - CenturyLink
« Reply #303 on: January 29, 2019, 06:09:56 PM »
FWIW Guggenheim downgraded today with a PT of $11, saying the company is poorly positioned, that price pressure is taking hold in enterprise, and that a dividend cut is a matter of when not if.
I wonder how much of the negativity derives from the 911 outage?

I circled on previous outages and fines, it could be a multiple over what was previously paid, but my guess is (as awful as it sounds) this outage may result in a slap on the wrist; however, the size of the liability is a question mark so investors may be dumping for fear that it is much larger than the market anticipates? 

how much pressure could there be on the enterprise business? 

do you know how they justify the divi cut?  CTL had some balance sheet erosion over the last few years, but with Level 3 the firm is on better footing (though not good enough for Patel to stay? as a side, anyone know where he went?)

$3.9B - $3.1B (Capex) = $800m

CTL will borrow the rest to cover the $1.5B of dividends? 

Gugg is saying borrowing $700m is too much to bear until debt is further reduced? 

Funny enough, it might be cheaper for the company to borrow and buyback stock than it would be to pay down debt...cost of capital would decline faster...

I don't have the piece so I don't know how the justify the divi cut but if they fear price erosion then presumably they see revenue decline as structural in which case cutting the divi is the only way to service debt.

Patel went to T-Mobile.

Sustainable FCF is likely around $3bn at the moment - more than sufficient to cover the dividend (which is $2.1bn). That's not the issue. And if they are successful with their cost transformation drive (as distinct from synergies) then the FCF upside is huge - a 10% cut in costs would add nearly 50% to FCF, even without revenue growth. The problem is that is the company is operationally and financially levered so if they can't cut costs to offset revenue declines then FCF drops dramatically. That's what the market is freaked about, and any note saying it's poorly positioned and is seeing pricing pressure is going to worsen concerns.

Equally if they can keep cutting costs until they can turn revenues around, then this thing is wildly undervalued. Absolutely no sustainable growth is priced in at this point.

I'm starting to think the analyst might have been looking at the wrong metrics?

Humor me for a second, last 9 months, $5B of cash from ops. 

$293m for share comp, doubtful accounts, and debt ext cost. 

capex marked at $2.26B

dividend marked at $1.7B

for the first nine months of the year, CTL had $747m after paying everything above...this might give $1B of room before adding any debt capacity for the full year

maybe the Embarq debt is the low hanging fruit...I see $138m of mortgages @ 7.125-8.37% due 2023-25, $1.485b senior notes due 2036 @ 7.995%, and a $150m "other" debt with @ 9% due this year.  These items, while not the largest, are certainly the most expensive (though still less expensive than buying back stock) ...

what a pickle

petec

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Re: CTL - CenturyLink
« Reply #304 on: January 29, 2019, 10:19:19 PM »
I just think thereís so much debt no-one is looking at FCFE (apart from us).

2018 FCF isnít the issue. Thereís plenty and theyíre paying into the pension and buying back debt this year.

In 2019 capex is guided to rise back to 16% of revenues so all else equal FCF will fall. All else may not be equal. On the positive side they are building a plan to reduce costs dramatically, which as discussed could boost FCF by a lot. On the negative side revenues are falling and both operating and financial leverage are high so a relatively small drop in profitable revenues (if that happens) would hurt FCF a lot.

Right now Iím biased to cost cuts and potential upside. Thereís little in the price for anything going right. But I can see why the marketís stressed: thereís so much debt that the equity could be really hurt if anything goes badly wrong.

petec

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Re: CTL - CenturyLink
« Reply #305 on: February 07, 2019, 07:06:15 AM »
Well this is fun. 21.5% free cash yield now using consensus 2019.

gfp

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Re: CTL - CenturyLink
« Reply #306 on: February 07, 2019, 07:11:43 AM »
Does this company repurchase stock in any meaningful way?

Well this is fun. 21.5% free cash yield now using consensus 2019.

Valuehalla

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Re: CTL - CenturyLink
« Reply #307 on: February 07, 2019, 09:06:45 AM »
No repurchases right now.
But CTL did repurchases additionally to the divi before the acquisition of Level 3 was made.
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txvalue

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Re: CTL - CenturyLink
« Reply #308 on: February 07, 2019, 09:26:49 AM »
I have obviously been a critic of CTL's assets and operations and I think it's difficult to forecast FCF here past 2019.  Everyone is banking on cost cuts but I don't know many examples of companies with so-so operations reducing costs significantly while improving products/services.  This is not a Bank of Americaesque low hanging fruit expense cutting story.

Legacy CTL revenue is likely to decline low to mid single digits moving forward and L3 which was looked at to be the growth engine has had flat revenues. There are many other companies better positioned in the space (cable, wireless, even fiber providers that don't have all of the legacy things attached to them).

They can trim costs further but with the debt pile and dividend commitment I think things will be more difficult than they are telegraphing to the market.  Add in the downgrades piling on, executive turnover and major shareholders exiting and you wonder if they wouldn't be best served by ripping off the dividend band-aid now.

 

« Last Edit: February 07, 2019, 09:36:58 AM by txvalue »

petec

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Re: CTL - CenturyLink
« Reply #309 on: February 07, 2019, 10:32:03 AM »
you wonder if they wouldn't be best served by ripping off the dividend band-aid now.

Quite. I am a little more optimistic than you on cost cuts - I think better products cost less for these guys - but they need to cut the dividend and opportunistically repo debt and stock.