CenturyLink: Is the Stock Headed Toward $40 and Beyond in 2012? - Stock Review

Apple's iPhone 4s has created a sensation, an iPhone 4s Wave that promises to add hundreds of thousands if not millions of new customers for tech products/services -- including broadband - and that will help CenturyLink (CTL), and the company is worth a review.

Telecom/broadband play CenturyLink Inc. (CTL), formerly known as CenturyTel, boasts 15 million telephone access lines, after acquiring Embarq in 2009 and Qwest Communications in April 2011.

Louisiana-based CenturyLink is a rural telephone carrier that operates in small/mid-sized cities in 23 states. The company also operates about 5.4 million DSL/broadband subscribers.

Look for CenturyLink to generate 2011 revenue of $15.5 billion and 2012 revenue of $18.2 billion.

Margins should improve to about 43 percent in 2012, from 42 percent in 2011. The company should also achieve cost synergies from billing and network integration.

Other eye-openers: revenue balance -- CTL's 2010 revenue breakdown: 44% voice, 26% network access, 24% data, 10% fiber transport/other. CenturyLink's shares closed Tuesday down 76 cents to $34.12

Also, CenturyLink's strategy to invest in broadband services and expand its network capacity will more than offset landline telephone revenue declines, with strong cash flow. A nice $2.90 annual dividend -- good for a 8.5 percent yield at the current share price of roughly $34 share price -- provides more than modest safety.

What's more, although cable t.v. operators represent a strong broadband competitor, the calculation forwarded here that CenturyLink will be able to offer comparable broadband speeds, both individually and in bundled services, to compete effectively with the mega-cap cable companies. Broadband speeds may not approach cable's, but the lower DSL price will capture a significant portion of the market from customers looking for a moderate-cost broadband internet service

The Thomson Reuters First Call FY2011/FY2012 EPS estimates for CTL are $1.74 to $1.87, and that FY2012 estimate looks about 5% low, according to my analysis.

Technical Analysis: CenturyLink's shares formed a bear hug in 2011, loping down from about $45 to $31 in August; there, the shares meandered for two months, but a recent push back toward the key, 50-day moving average provided encouragement.

Stock Category: CenturyLink's is ideal for investors who want a moderate-risk telecomm stock with a nice dividend. The top line, excluding acquisition-related revenue, will be collared by the sluggish U.S. economic recovery, but the dividend will make the brighter day worth the wait.

2011 Outlook: I view CenturyLink as a long-term play, but if you're looking to sell CTL within the year, it's probably best to take your profits after it rises to $38-39, if it fails to clear $40. I see a $42-44 CTL price by the end of 2012.

Stock Analysis: I consider CenturyLink Inc. to be a moderate-risk stock. If an investor has already purchased the company's shares, I'd hold them. If not, I'd consider buying a 25% position in CTL now; then buy another 25% in one month, if U.S. economic conditions don't worsen substantially. Under any circumstance, I wouldn't buy more than 50% of my CTL position before January 2012 and I'd put a sell/stop loss at: $23.

- -

Disclosure: L.C. Jacobs of New York, N.Y. reviews stocks on a quarterly, semi-annual, and annual basis.

L.C. Jacobs has no positions in stocks reviewed, but does own federal, municipal, and corporate bonds.