Century Link (CTL) equity recommendation
Upcoming SlideShare
Loading in...5
×
 

Like this? Share it with your network

Share

Century Link (CTL) equity recommendation

on

  • 282 views

Equity research presentation of Century Link (CTL) for Student Managed Investment Fund.

Equity research presentation of Century Link (CTL) for Student Managed Investment Fund.

Statistics

Views

Total Views
282
Views on SlideShare
281
Embed Views
1

Actions

Likes
0
Downloads
0
Comments
0

1 Embed 1

http://www.linkedin.com 1

Accessibility

Categories

Upload Details

Uploaded via as Microsoft PowerPoint

Usage Rights

© All Rights Reserved

Report content

Flagged as inappropriate Flag as inappropriate
Flag as inappropriate

Select your reason for flagging this presentation as inappropriate.

Cancel
  • Full Name Full Name Comment goes here.
    Are you sure you want to
    Your message goes here
    Processing…
Post Comment
Edit your comment

Century Link (CTL) equity recommendation Presentation Transcript

  • 1. CenturyLink NYSE: CTL
  • 2. Business• Integrated Communications company• Provide a broad array of communications services including voice, internet, data and video service – Fiber transport – Wholesale communications services – Competitive local exchange carrier service – Security monitoring – Other communications, professional and business information services• 2010: 4th largest local exchange telephone company
  • 3. Services• Voice: fixed monthly charge – Local calling service – Enhanced voice services – Long distance service – Anticipate 7-7.5% access line loss• Data: monthly recurring charges – Broadband High-speed Internet access – Business data transmission services • Dedicated equipment for transmitting large amounts of data – Switched digital television services: 20% of lines• Network Access – Wholesale services to carriers and customers
  • 4. Basic InformationMarket Cap 23.01 BilFiscal Yearend December 31Last Earnings Announcements November 2Next Earnings Announcements February 15Institutional Ownership 76.57%Insider Ownership .57%# of Analysts 24S&P Quality Ranking
  • 5. Competition• AT&T Inc – 169.72B• Verizon Communications Inc – 103.22B• Comcast Corp – 58.26B
  • 6. Mergers & Acquisitions• Embarq Corp – July 2009 – Home phone service, high-speed Internet, wireless, and satellite TV – Wireline Voice, Cable Video & Communication Equipment• Zillion TV Corp – February 2010 – Television Broadcasting service
  • 7. Mergers & Acquisitions• Qwest Communications International – April 2011 – Fiber-optic network, high-speed internet and digital home phone services – Network, data & voice for small & large businesses, government agencies & wholesale customers – Networx: largest communication services contract in world – Qwest serves 95% of Fortune 500 – Created 173,000-mile fiber network
  • 8. Mergers & Acquisitions• SAVVIS Inc – July 2011 – Cloud infrastructure and hosted IT solutions for enterprises – 2,500 unique clients • 32 of the top 100 companies in the Fortune 500 – Achieve global scale as a managed hosting and colocation provider – Accelerate ability to deliver quality managed hosting and cloud capabilities to business customers – 48 data centers located in North America, Europe, and Asia – 207,000-mile fiber network nationally – 190,000 mile global access network
  • 9. Management Discussion• Embarq substantially expanded size & scope – Consolidated results begin July 1, 2009 – Previous year comparisons less meaningful• Revenue declines in Voice and Network Access – Declines in access lines, intrastate access rates, minutes of use and federal support funds – Bundle & provide new services – Provide premium service to higher % of customers – Increase usage of networks – Market to new customers
  • 10. Risk Factors• Continued access line losses – Competition and wireless/broadband substitution• Technological & regulatory changes increasing competition – Wireless providers, Cable television operators, VoIP & broadband providers• Network disruptions or system failures• Limited number of key suppliers and vendors• PP&E located on property owned by 3rd parties
  • 11. Capital StructureQwest acquisition included $11.947 billion of long-term debt
  • 12. Industry Structure• “The firm should have the financial flexibility to adapt as the telecom industry changes while maintaining its dividend. While the Qwest and Embarq deals brought exposure to more competitive markets, a significant portion of CenturyLinks service territory is rural.”
  • 13. Industry Structure• "The small business segment is even more competitive among ISPs, highlighting the need for providers to develop strong marketing strategies to ensure they can retain and grow market share."
  • 14. Industry Structure“The industry is highly concentrated: the 50largest companies generate about 90 percentof revenue.”Industry Depends Highly on RegulatoryDecisions — “The FCC regulates the interstateactivities of telecom providers, includingpricing and operations, while state publicutility commissions (PUCs) regulate similarmatters at the state level.” http://subscriber.hoovers.com/H/industry360/overview.html?industryId=1 577
  • 15. (un?)Competitive Advantages“While CenturyLinks financial position is better than that of many peers, it still isnt great, especially considering its unfunded postretirement benefit obligations and the cash it will pay for Savvis.” Enterprise Cloud Computing: Should they be diversifying into this industry?
  • 16. Competitive Advantages
  • 17. Competitive Advantages• “CenturyLink, which merged with Qwest in April 2011, ranked as the third largest business ISP at 7 percent share.”
  • 18. Competitive Advantages
  • 19. IndustriesGood.
  • 20. Large Cities
  • 21. Summary• Rural/small market dominance• Very competitive market• Government reg. (good…)• Alpha – expansion to larger markets• Alpha – different markets• Diversification, making sure they aren’t going to be left behind
  • 22. CenturyLink Income Statement FQ3 2011 FQ3 2010 FQ3 2009 FQ3 2008 FQ3 2007 FQ3 2011 FQ3 2010 FQ3 2009 FQ3 2008 FQ3 2007 9/30/2011 9/30/2010 9/30/2009 9/30/2008 9/30/2007 9/30/2011 9/30/2010 9/30/2009 9/30/2008 9/30/2007Revenue 12,419.70 7,149.49 3,788.13 2,613.36 2,607.37 - Cost of Revenue 4,921.43 2,483.96 1,391.02 970.71 909.48 39.6% 34.7% 36.7% 37.1% 34.9%Gross Profit 7,498.27 4,665.52 2,397.11 1,642.65 1,697.89 60.4% 65.3% 63.3% 62.9% 65.1% - Operating Expenses 5,537.60 2,550.95 1,527.91 928.76 900.11 44.6% 35.7% 40.3% 35.5% 34.5%Operating Income 1,960.67 2,114.57 869.21 713.88 797.78 15.8% 29.6% 22.9% 27.3% 30.6% - Interest Expense 867.96 553.25 290.84 201.87 207.18 7.0% 7.7% 7.7% 7.7% 7.9% - Foreign Exchange Losses (Gains) 0 0 0 0 0 0.0% 0.0% 0.0% 0.0% 0.0% - Net Non-Operating Losses (Gains) -4.38 44.85 -30.7 -36.08 -18.83 0.0% 0.6% -0.8% -1.4% -0.7%Pretax Income 1,097.09 1,516.47 609.06 548.09 609.43 8.8% 21.2% 16.1% 21.0% 23.4% - Income Tax Expense 418.14 565.63 224.24 167.39 233.86 3.4% 7.9% 5.9% 6.4% 9.0%Income Before XO Items 678.95 950.83 384.83 380.69 375.57 5.5% 13.3% 10.2% 14.6% 14.4% - Extraordinary Loss Net of Tax 0 -2.74 -133.21 0 0 0.0% 0.0% -3.5% 0.0% 0.0% - Minority Interests 0.69 0.8 0.94 0 0 0.0% 0.0% 0.0% 0.0% 0.0%Net Income 678.26 952.78 517.1 380.69 375.57 5.5% 13.3% 13.7% 14.6% 14.4%
  • 23. CenturyLink Balance Sheet FQ3 2011 FQ3 2010 FQ3 2009 FQ3 2008 FQ3 2007 FQ3 2011 FQ3 2010 FQ3 2009 FQ3 2008 FQ3 2007 9/30/2011 9/30/2010 9/30/2009 9/30/2008 9/30/2007 10/1/2011 10/2/2010 10/3/2009 9/30/2008 9/30/2007Assets+ Cash & Near Cash Items 1,123.00 243.06 531.19 258.96 58.71 2.0% 1.1% 2.3% 3.1% 0.7%+ Accounts & Notes Receivable 1,998.00 749.65 670.73 214.01 233.96 3.5% 3.4% 2.9% 2.6% 2.8%+ Inventories 0.00 35.14 43.37 9.28 7.69 0.0% 0.2% 0.2% 0.1% 0.1%+ Other Current Assets 687.00 199.26 212.97 26.53 27.52 1.2% 0.9% 0.9% 0.3% 0.3%Total Current Assets 3,808.00 1,227.11 1,458.26 508.78 327.88 6.7% 5.5% 6.4% 6.1% 4.0%+ Net Fixed Assets 19,290.00 8,801.74 9,363.19 2,915.35 3,144.82 34.0% 39.6% 40.8% 35.2% 38.2%+ Other Long-Term Assets 33,637.00 12,191.36 12,135.62 4,848.77 4,759.95 59.3% 54.9% 52.9% 58.6% 57.8%Total Long-Term Assets 52,927.00 20,993.10 21,498.81 7,764.12 7,904.77 93.3% 94.5% 93.6% 93.9% 96.0%Total Assets 56,735.00 22,220.21 22,957.06 8,272.90 8,232.65Liabilities and Equity+ Accounts Payable 1,360.00 292.68 331.69 98.74 97.91 2.4% 1.3% 1.4% 1.2% 1.2%+ Short-Term Borrowings 1,034.00 496.55 769.48 45.36 254.90 1.8% 2.2% 3.4% 0.5% 3.1%+ Other Short-Term Liabilities 2,343.00 860.50 1,048.10 330.62 327.11 4.1% 3.9% 4.6% 4.0% 4.0%Total Current Liabilities 4,737.00 1,649.73 2,149.28 474.71 679.92 8.3% 7.4% 9.4% 5.7% 8.3%+ Long-Term Borrowings 21,142.00 7,061.74 7,454.52 3,299.27 2,747.58 37.3% 31.8% 32.5% 39.9% 33.4%+ Other Long-Term Liabilities 8,880.00 3,902.88 3,989.24 1,302.68 1,440.74 15.7% 17.6% 17.4% 15.7% 17.5%Total Long-Term Liabilities 30,022.00 10,964.63 11,443.76 4,601.95 4,188.31 52.9% 49.3% 49.8% 55.6% 50.9%Total Liabilities 34,759.00 12,614.36 13,593.03 5,076.66 4,868.23 61.3% 56.8% 59.2% 61.4% 59.1%+ Total Prefered Equity 0.00 0.24 0.24 0.24 7.35 0.0% 0.0% 0.0% 0.0% 0.1%+ Minority Interest 0.00 6.70 6.73 0.00 0.00 0.0% 0.0% 0.0% 0.0% 0.0%+ Share Capital & APIC 19,471.00 6,389.82 6,256.42 126.46 308.18 34.3% 28.8% 27.3% 1.5% 3.7%+ Retained Earnings 2,505.00 3,209.10 3,100.65 3,069.54 3,048.89 4.4% 14.4% 13.5% 37.1% 37.0%Total Equity 21,976.00 9,605.85 9,364.03 3,196.24 3,364.42 38.7% 43.2% 40.8% 38.6% 40.9%Total Liabilities & Equity 56,735.00 22,220.21 22,957.06 8,272.90 8,232.65
  • 24. CenturyLink Cash Flows FQ3 2011 FQ3 2010 FQ3 2009 FQ3 2008 FQ3 2007 FQ3 2011 FQ3 2010 FQ3 2009 FQ3 2008 FQ3 2007 10/1/2011 10/2/2010 10/3/2009 9/30/2008 9/30/2007 10/1/2011 10/2/2010 10/3/2009 9/30/2008 9/30/2007Cash from Operating Activities+ Net Income 678.26 952.78 517.10 380.69 375.57+ Depreciation & Amortization 3,135.57 1,425.38 747.12 532.54 525.98 462.3% 149.6% 139.9% 140.0% 140.0%+ Other Non-Cash Adjustments 101.30 12.01 (184.31) 60.54 63.23 14.9% 1.3% 15.9% 16.8% 16.8%+ Changes in Non-Cash Capital 121.11 (297.22) 67.91 (65.99) 42.87 17.9% -31.2% -17.3% 11.4% 11.4%Cash from Operations 4,036.24 2,092.95 1,147.83 907.79 1,007.64 595.1% 219.7% 238.5% 268.3% 268.3%Cash from Investing Activities+ Disposal of Fixed Assets 0.00 0.00 0.00 0.00 8.23+ Capital Expenditures (1,774.99) (937.42) (518.94) (326.75) (291.20) -261.7% -98.4% -85.8% -77.5% -77.5%+ Other Investing Activities (1,235.20) (2.23) 79.53 (96.79) (301.75) -182.1% -0.2% -25.4% -80.3% -80.3%Cash from Investing Activities (3,010.19) (939.65) (439.41) (423.54) (584.73) -443.8% -98.6% -111.3% -155.7% -155.7%Cash from Financing Activities+ Dividends Paid (1,326.34) (867.74) (421.08) (157.36) (29.07) -195.6% -91.1% -41.3% -7.7% -7.7%+ Change in Short-Term Borrowings 0.00 0.00 0.00 23.00 (23.00) 0.0% 0.0% 6.0% -6.1% -6.1%+ Increase in Long-Term Borrowings 3,232.80 0.00 644.42 563.12 764.84 476.6% 0.0% 147.9% 203.6% 203.6%+ Decrease in Long-Term Borrowings (2,111.51) (665.45) (656.71) (281.94) (729.39) -311.3% -69.8% -74.1% -194.2% -194.2%+ Increase in Capital Stocks 160.71 101.24 18.04 15.79 88.14 23.7% 10.6% 4.1% 23.5% 23.5%+ Decrease in Capital Stocks (33.19) (20.79) (8.78) (469.43) (470.84) -4.9% -2.2% -123.3% -125.4% -125.4%+ Other Financing Activities (68.64) 11.05 (12.08) 22.81 2.43 -10.1% 1.2% 6.0% 0.6% 0.6%Cash from Financing Activities (146.17) (1,441.69) (436.19) (284.01) (396.90) -21.6% -151.3% -74.6% -105.7% -105.7%Net Changes in Cash 879.88 (288.38) 272.23 200.24 26.02 129.7% -30.3% 52.6% 6.9% 6.9%
  • 25. CenturyLink Enterprise Value 11/18/2011 10/1/2011 10/2/2010 10/3/2009 9/30/2008 9/30/2007 Market cap 23005.80 20449.18 11943.94 9994.89 3689.88 5138.69 + Preferred Equity 0.00 0.00 0.24 0.24 0.87 7.35 + Minority Interest 0.00 0.00 6.70 6.73 0.00 0.00 + Total Debt 22176.00 22176.00 7558.30 8224.00 3061.59 3002.47 - Cash & Cash Equiv 1123.00 1123.00 243.06 531.19 63.90 58.71 Enterprise Value 44058.80 41058.80 19266.11 17694.67 6688.44 8089.80
  • 26. Liquidity Ratios Current Ratio Quick Ratio
  • 27. Activity Ratios Asset Turnover A/R Turnover
  • 28. Leverage Ratios Financial Leverage Debt/Equity Debt/Assets
  • 29. Profitability Ratios Gross Margin Operating Margin Profit Margin
  • 30. ROAROEROC
  • 31. Dupont Analysis
  • 32. CenturyLink Inc.- Piotroski Breakdown Qualification Score1. Positive Net Income 12. Positive Cash Flow from Operations 13. Increase of Return of Assets 1(by 5 bp)4. Cash Flow from Operations > Net Income 15. Decrease in Long-Term Debt to Assets 06. Increase in Current Ratio 17. Decrease in Shares Outstanding 08. Increase in Gross Margin 19. Increase in Asset Turnover 0Total Score 6/9
  • 33. Price/Book Ratio Price MultiplesPrice/Earnings RatioPrice/Sales RatioPrice/ Operating Cash Flow
  • 34. Analyst Coverage
  • 35. Earning Surprise - Quarterly
  • 36. Earning Surprise - Annually
  • 37. Earning Surprise - Matrix
  • 38. Revenue Surprise- Annually
  • 39. Revenue Surprise - Matrix
  • 40. Growth Rates Revenue Growth EPS Growth Asset Growth
  • 41. Dividends Dividend Yield Dividend Payout Dividend CoverageIncome before XO/Cash Common Dividends
  • 42. Dividends FCF Payout FCF Payout Company Dividend Yield (unlevered) (levered) Most Recent Quarter’s Most Recent Quarter’s AT&T 5.9% 77% 92% Verizon 5.4% 20% 21% Communications Windstream 8.5% 118% 534% Corporation CenturyLink 7.7% 49% 63% Frontier 13.7% 60% 90% CommunicationsSource: S&P Capital IQ.
  • 43. 6-Month Comparative vs. Peers
  • 44. 2-Year Comparative vs. Peers
  • 45. 5-Year Comparative vs. Peers
  • 46. 6-month Comparative vs. Index
  • 47. 2-Year Comparative vs. Index
  • 48. 5-Year Comparative vs. Index