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A Look at CenturyLink’s Dividend Yield and Outlook

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CenturyLink (CTL) stock closed trading at $13.16 on December 24. This is down 0.23% from the previous trading session. This performance lagged behind the S&P 500’s 0.02% decrease on the day. Meanwhile, the Dow Jones Industrial Average (DJIA) fell 0.13%. Also, the Nasdaq Composite Index (IXIC) gained 0.08% at the same time.

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CenturyLink’s dividend yield

In the third quarter, CenturyLink had an adjusted FCF (free cash flow) balance of $983 million. This is 15.5% lower than its FCF balance of $1.2 billion in the third quarter of 2018. Also, the company’s cash flows from operating activities rose 5.7% YoY (year-over-year) to $1.9 billion in the third quarter. Overall, its capital spending in Q3 2019 totaled $957 million, compared to $684 million in Q3 2018.

CenturyLink generates robust free cash flow and notes that it is committed to rewarding its shareholders with cash dividends. In the third quarter, the company paid $275 million in dividends. At the end of December 24, CenturyLink’s dividend yield stood at 7.6%. It was higher than AT&T’s (T) dividend yield at about 5.3%.

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Recent Q3 figures drive CenturyLink stock

CenturyLink announced its Q3 results on November 6 after the market closed. In the third quarter, the company reported an adjusted EPS of $0.31, which was lower than Wall Street analysts’ forecast of $0.33. Excluding the integration-related costs and special items, the net profits in the third quarter were $328 million, which was more than profits of $327 million or $0.30 per share reported in Q3 2018.

CenturyLink’s top-line has been declining over the last few quarters. The company’s net sales in the third quarter were $5.6 billion. This is compared to $5.8 billion in the third quarter of 2018, which is down 3.6% YoY. However, the company beat the consensus revenue estimate of $64 million in the third quarter. It should be noted that CenturyLink’s net revenues rose by 0.5% from the last quarter.

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In the third quarter, CenturyLink’s Enterprise component’s revenues rose 3.0% YoY to reach $1.55 billion. Also, the company’s International and Global Accounts component’s revenues rose 0.8% YoY to $899 million. The company’s Wholesale component’s revenues fell 6.6% YoY to $1.03 billion in the third quarter. And, the Small and Medium Business component’s revenues fell 6.5% YoY to $734 million. Meanwhile, the Consumer component’s revenues fell 9.2% YoY to $1.4 billion.

CenturyLink’s outlook for 2019

In the Q3 earnings investor presentation, CenturyLink reiterated its business outlook for fiscal 2019. For the full year of 2019, the company expects its adjusted EBITDA to be in the range of $9.0 billion—$9.2 billion. Also, the FCF is expected to be between $3.1 billion—$3.4 billion. Plus, the company has guided for $1.1 billion in cash dividend payments. Additionally, the company expects its capex to come in at $3.5 billion—$3.8 billion for this year.

Analysts expect CenturyLink’s Q4 revenues to reach $5.5 billion, down 4% YoY. Analysts expect the company’s sales to shrink by 4.5% YoY in fiscal 2019. Also, Wall Street analysts expect its sales to decline 2.9% YoY in fiscal 2020.

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Analysts’ recommendations and target prices

Out of the 15 analysts covering CenturyLink stock, two have a “buy” rating on the stock. Last month, three analysts had a “buy” rating. Also, ten analysts have a “neutral” rating on the stock, up from eight in November. The remaining three analysts have a “sell” rating on the stock, up from two in the last month. As of December 24, the analysts have given a 12-month median target price of $13.50 on CenturyLink stock. Based on that day’s closing price, this price target represents a potential upside of about 2.6%.

On December 17, Morgan Stanley analyst Simon Flannery downgraded CenturyLink stock from “overweight” to “equal weight.” The analyst reduced the price target to $14.80 from $16. According to The Fly report on December 17, Flannery said, “Heightened wireless competition, regulatory concerns and elevated leverage in a space facing secular headwinds present increasing risks for the Telecom Services sector in 2020.”

The report added, “While CenturyLink remains attractively priced on some metrics, its transformation gains will be around two-thirds realized exiting 2020 as revenue declines continue.”

Stock performance

On a YTD (year-to-date) basis, CenturyLink stock was down about 13.1% as of December 24. It reported returns of 0.2% in the trailing five days and -12.1% in the trailing month. Also, the stock fell 9.4% in the trailing 12 months. The stock was trading 21.4% below its 52-week high of $16.75. Also, it was trading 36.5% above its 52-week low of $9.64. At its December 24 closing price, CenturyLink’s market cap stood at $14.4 billion.

CenturyLink closed 4.9% and 4.5% below its 20-day and 50-day moving averages of $13.84 and $13.78, respectively. It closed 2.6% above its 100-day moving average. Also, the stock’s 14-day relative strength index score of 34 signified that it was approaching oversold levels.

CenturyLink’s lower, middle, and upper Bollinger Band levels are $12.89, $13.84, and $14.80, respectively. On December 24, it closed near its lower Bollinger Band level. So, this signified that it was oversold.

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