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CenturyLink Stock Falls after Its Q4 Earnings Results

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CenturyLink (NYSE:CTL) released its fourth-quarter earnings results after the markets closed on Wednesday. The quarter ended on December 31, 2019. Notably, CenturyLink stock is trending downward in today’s trading session. The stock has fallen by about 10.9% as of 9:46 AM ET. Today, the stock also fell in the pre-market trading session. The stock fell even though the company met analysts’ revenue and earnings estimates for the fourth quarter.

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CenturyLink’s fourth-quarter earnings results

CenturyLink’s adjusted EPS fell 0.1% YoY (year-over-year) to $0.33 in the fourth quarter of 2019, which met analysts’ consensus estimate of $0.33. In the fourth quarter of 2019, CenturyLink reported revenue of $5.57 billion—a 3.6% reduction from $5.78 billion in the fourth quarter of 2018. The company beat Wall Street analysts’ consensus revenue expectation of $5.55 billion.

In the fourth quarter of 2019, CenturyLink’s Enterprise component’s revenues fell by 0.2% YoY and reached $1.56 billion. Also, the technology company’s International and Global Accounts component’s sales fell 2.1% YoY to $904 million. The company’s Wholesale component’s revenues fell 7.4% YoY to $994 million in the fourth quarter of 2019. Meanwhile, the Small and Medium Business component’s sales fell 3.3% YoY to $731 million. The Consumer component’s revenues fell 5.5% YoY to $1.4 billion.

In the fourth quarter of 2019, CenturyLink reported an adjusted EBITDA of $2.28 billion compared to $2.30 billion in the fourth quarter of 2018. The company’s adjusted EBITDA margin increased to 40.9% in the fourth quarter of 2019 from 39.8% in the fourth quarter of 2018.

During the fourth-quarter earnings conference call with investors, CenturyLink CEO Jeff Storey said, “We reduced debt in 2019 by a little more than $2 billion. In addition to leverage reduction, we’re taking advantage of our improved balance sheet and strong capital markets to lower our cost of capital and reduce interest rate risk.”

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Dividend yield

In the fourth quarter of 2019, CenturyLink generated an adjusted FCF (free cash flow) balance of $1.02 billion—14.3% lower than its adjusted FCF balance of $1.19 billion in the fourth quarter of 2018. The company’s cash flows from operating activities fell 4.4% YoY to $1.91 billion in the fourth quarter of 2019. CenturyLink’s capital spending in the fourth quarter of 2019 was $940 million compared to $915 million in the fourth quarter of 2018.

CenturyLink is committed to rewarding its shareholders with dividends as it generates robust FCF. In the fourth quarter, the company paid $271 million in dividends. At the end of Wednesday, CenturyLink’s dividend yield was 6.60%, which was more than AT&T’s (NYSE:T) dividend yield at around 5.47%.

CenturyLink’s outlook for 2020

In the fourth-quarter earnings investor presentation, CenturyLink provided its business outlook for fiscal 2020. For fiscal 2020, the company expects its adjusted EBITDA to be $9.0 billion—$9.2 billion. Also, the FCF will likely be $3.1 billion—$3.4 billion. The company looks forward to $1.1 billion in dividend payments. CenturyLink expects to spend $3.6 billion—$3.9 billion on the capex this year.

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Analysts’ recommendations and target price

Among the 15 analysts tracking CenturyLink, two recommend a “buy”—unchanged from the previous month. About ten analysts recommend a “hold”—unchanged from the last month. Meanwhile, three analysts recommend a “sell”—unchanged from the last month. Analysts have an average target price of $13.02 on CenturyLink. The target price implies a return of -14.1% based on the closing price of $15.16 on Wednesday.

Today, RBC Capital analyst Jonathan Atkin increased its target price on CenturyLink stock to $14 from $13. J.P. Morgan also increased its target price on the stock to $11 from $10.

Stock returns

On Wednesday, CenturyLink stock rose 1.54% and closed at $15.16 with a market capitalization of $16.5 billion. The stock is trading 0.9% below its 52-week high of $15.30 and 57.3% above its 52-week low of $9.64. Notably, the stock has also returned 14.8% YTD (year-to-date). In comparison, the S&P 500 Index has gained 4.6% YTD.

Based on the closing price on Wednesday, CenturyLink stock was trading 5.4% above its 20-day moving average of $14.38. The stock is also trading 9.9% above its 50-day moving average of $13.79 and 12.2% above its 100-day moving average of $13.51.

CenturyLink’s 14-day relative strength index score of 67 suggests that the stock is nearing the overbought zone. The stock’s lower, middle, and upper Bollinger Band levels are $13.19, $14.32, and $15.44, respectively. On Wednesday, the stock ended close to its upper Bollinger Band level, which indicates that the stock is overbought.

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