CenturyLink (CTL, Financial) has been a great stock to hold for investors in 2014. The stock has appreciated more than 22% YTD and the company is taking many steps to move forward. So the question is, will CenturyLink continue to reward investors or should investors take profits off the table? Let’s take a look.
The road ahead
CenturyLink has expanded quickly in the cloud segment by providing low prices and extra cloud capacity. It recently gashed the prices of typical cloud VM by 60%, which helped bring the company in the competition. The company looks forward to stand as a champion in the cloud market. The strategy to sustain and succeed in the cloud market is a larger customer base and lower costs. The recent price cut suggests that the company is able to manage the costs internally and is aiming on a wider customer base. In addition, the company has added elements of customization and differentiation in its service and support options.
It's M&A of Tier3 and Savvis allowed it to gain access to 11 operating cloud focuses, and it plans to include more soon, incorporating one in Canada and an alternate in the United Kingdom. It had procured Savvis, a supplier of worldwide cloud framework and facilitated IT arrangements, to reinforce its offerings in the cloud. This procurement has upgraded Centurylink's overseen facilitating administration that it gives to undertakings. Subsequently, it enlisted 13% development in oversaw facilitating in the past quarter, and anticipates that the development will proceed in the high adolescents.
CenturyLink will be conveying its progressed cloud hub to six of its server farms before the year's over, beefing up its present count of nine Tier 3 cloud hubs. This sending will help the organization keep up its aggressiveness, as Tier 3 cloud hubs will expand operating effectiveness and upgrade IT and cloud enablement administrations.
CenturyLink has also announced the acquisition of Rackspace, which could help its data services sales, own nine extra cloud centers, get access to OpenStack technology, and strengthen itself as big player in the cloud sphere. SinceRackspace's market capitalization is higher than $5 billion, the acquisition would require an estimated $6 billion in financing. While this could lead to a credit downgrade for CenturyLink, it is already well known for making billion-dollar acquisitions. For instance, it bought Savvis for $2.5 billion three years ago.
CenturyLink saw great escalation in products like high-speed Internet, and high bandwidth. High-speed internet and Prism TV were two of the major reasons for growth in earnings and it added about 66,000 high speed Internet clients and over 24,000 Prism TV customers during the first quarter. The company also installed 24,000 new Prism TV connections, with 66,000 new high-speed internet lines. The growth of Prism TV and high-speed internet connections go hand in hand, because in order to have a Prism TV, you also need to have high-speed internet. The company expects to add 300,000 to its Prism TV client base by the end of the year.
Furthermore, CenturyLink is also targeting some other segments to make its operations more efficient and profitable. All in all, the company is planning to transform itself from a traditional network communications’ company to an integrated provider of IP, enhanced network, cloud hosting and IT services.
The company recently launched its solution Managed Office, which provides integrated network solutions, VoIP, email, and other key business applications. The company saw strong early sales for this product, indicating its strong product development.
Additionally, CenturyLink is expanding its gigabit-capable passive optical networks via. GPON. GPON gives fast Ethernet-quality speeds, enabling clients to sync their business with enhanced cloud facilities. Also, the company is deploying fiber for wireless towers, so as to help fulfill demand from wireless carriers for data backhaul. This is done to deliver fast Ethernet quality speeds to its clients, enabling them to cloud-enable their businesses.
Conclusion
Following an upbeat quarter, short interest in CenturyLink has declined considerably. As per recent repots, the short interest has fallen as much as 31.2% by August 15 from July 31. CenturyLink also holds a solid dividend yield of 5.80%. Given all the factors, the company seems to be a good investment while the stock is also up over 19% year-to-date.
