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What’s Happening in Windstream’s Enterprise Component?

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Jun. 21 2016, Updated 12:05 p.m. ET

Windstream’s enterprise component

The enterprise segment is a growing, significant component for Windstream Holdings (WIN). The component’s revenue grew by ~1.9% YoY (year-over-year) to ~$0.51 billion in 1Q16. Windstream’s overall revenue was ~$1.4 billion in the quarter. The component’s contribution margins are expanding, and the company plans to see the same trend in the medium term. According to chief financial officer Bob Gunderman, “one of the key focus areas is expanding enterprise contribution margins. We expect to get to 20% contribution margins by three years.”

He added, “We’re well on our way. We began 2015 at 10% and ended at almost 15% and expect to be landing in the high teens by the end of this year. With a $2 billion revenue business, this is a great margin opportunity for us and really helps support our adjusted OIBDAR goals in 2017 and beyond.”

He spoke about this at the recent Barclays High Yield Bond & Syndicated Loan Conference.

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Expanding enterprise margins supporting overall growth

Windstream’s enterprise segment was the only component to see its margins expand in 1Q16, growing from ~10.3% in 1Q15 to ~13.7% in 1Q16. Meanwhile, the contribution margins of Windstream’s consumer and small business ILEC (incumbent local exchange carrier), carrier, and small business CLEC (competitive local exchange carrier) components contracted YoY in the quarter.

For diversified exposure to stocks of players in the US wireline telecom industry, you could consider the SPDR S&P 500 ETF (SPY). The ETF had a ~2.7% exposure to AT&T (T), Verizon (VZ), CenturyLink (CTL), Level 3 Communications (LVLT), and Frontier Communications (FTR) at the end of May 2016.

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