by Luke Jones
Posted 10/29/2012 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."
That cloud is what's prompting the "buy" rating.
"That's the way you make money in the stock market," Jaegers said. "You buy low when people are worried about everything under the sun."
Jaegers also said CEO Jeff Gardner's words had strengthened her position on the company.
"I've known the management a long time," she said. "I think they have high integrity."
Jaegers said Gardner had historically spoken of preserving the dividend, and his own stock purchases in Windstream seem to confirm that.
"I don't think Jeff is a fool," Jaegers said. "The fact that he's put his own money at stake speaks very loudly."
Windstream's revenue increased 15.46 percent between fiscal 2010 and 2011 from $3.71 billion to $4.29 billion. Its net income fell 46.6 percent from $310.7 million to $169 million.
Meanwhile, at Acxiom
Acxiom Corp., Little Rock's miner of "big data," has seen major fluctuation in its stock prices since the great recession, partly due to drastic changes in management and company vision and partly due to the recession itself.
In 2008, when its stock fell to about $6, "it was going through a busted leverage buyout where it was supposed to be acquired but was not," said Carter Malloy, who covers Acxiom for Stephens Inc. The recession didn't help, either.
But it's recovered since then and is hovering around $16 with analysts aiming at an average of $17.60 by the end of the year. Of the company's five ratings, two rate it "buy," two rate "hold," and one rates it "overweight."
Much of the increased price comes from the company's rearrangement of its values, which included divesting some of its services and hiring multiple new executives.
Stephens, which rates it "overweight," and has a target of $19, cited the company's new management team, including former Microsoft exec Scott Howe, who joined as CEO in August 2011.
"We anticipate the new management team will be able to extract value from Acxiom's core products, and ultimately reignite growth in the company," Malloy said.
Acxiom had revenue of $1.13 billion for its fiscal year ending March 2012, a 2.53 percent decrease from the previous year. Acxiom's income surged almost 300 percent to $43.36 million from a 2011 loss of $151.96 million.