State-Based Tech Stocks Waver Amid Changes

by Luke Jones  on Monday, Oct. 29, 2012 12:00 am  

Windstream Corp. of Little Rock, the telecom that spun off from the former Alltel Corp., has seen its stocks slip during the past year.

(Click here for an overview and list of the state's largest stockholders.)

Most analysts are recommending shareholders keep their Windstream stock as its price hovers around $10 per share, having fallen from $15 in mid-2010. The average target price for the stock is $10.98.

Some analysts have shown concern of late that the days of Windstream's 25-cent dividend may be numbered. Part of that has to do with the company's shift toward business clients and away from residential services. Analysts are also unsure about the $2.3 purchase of Paetec Holding Corp. of Fairport, N.Y., which closed earlier this year.

Of the company's 18 stock ratings, Stephens Inc. of Little Rock holds a dissenting opinion.

"We have an overweight rating and a $12 target for Windstream," Stephens Inc. analyst Barry McCarver said. "I think the fact that the company is paying a little over 10 percent dividend yield is very attractive in this market, and I believe the dividend is very sustainable."

Analysts also worry that the shift to enterprise clients is leading to increased capital expenditure, putting the dividend at risk. But McCarver pointed out that the company's biggest expenditure had actually gone toward its fiber-to-tower projects, which are supposed to lessen each year.

"By my model, we estimated them spending $240 million in 2012 on fiber-to-tower projects, then the next year it comes down to $120 million and in 2014 it's virtually zero," he said.

McCarver said the Paetec purchase, however, accounted for most of the company's stock plunge. The acquisition should eventually save Windstream some cash, but it's a slow process. McCarver said that Windstream was shooting for about $100 million in cost savings from the integration of Paetec.

"In my model, they are achieving about $50 million this year, then run close to $65 million in 2013 and achieve the $100 million run rate by the end of 2014," he said. "But I would not be surprised if it was over $100 million."

Donna Jaegers covers Windstream for D.A. Davidson of Great Falls, Mont., which has a $14.25 price target on Windstream and rates it as a "buy."

"They closed on Paetec last fall; then the first quarter of this year, they had a stumble where they revealed that one of the wholesale services Paetec is selling that was generating about $30 million in cash flow was discontinued because of an FCC comment on the service," Jaegers said. "That sort of spooked people, and the company's been under a cloud since."



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