WINDSTREAM CORP. $8.25 (Nasdaq symbol WIN; Income Portfolio, Utilities sector; Shares outstanding: 592.8 million; Market cap: $4.9 billion; Price-to-sales ratio: 0.8; Dividend yield: 12.1%; TSINetwork Rating: Average; www.windstream.com) provides telephone and other communication services to 4.2 million clients, mainly in rural areas in the U.S.
In November 2011, Windstream bought PAETEC Holding Corp., which sells telecommunication services to businesses in 46 states. The company issued $842 million in stock to PAETEC shareholders and assumed $1.6 billion of PAETEC’s debt.
The deal raised Windstream’s long-term debt to $8.1 billion, or a high 1.7 times its market cap. It also added more business and high-speed Internet clients. These users now supply 71% of Windstream’s sales.
However, demand for local phone service continues to fall. That cut Windstream’s sales by 2.5% in the quarter ended March 31, 2013, to $1.50 billion from $1.54 billion a year earlier. Higher interest and restructuring costs lowered earnings by 13.6%, to $52.3 million from $60.5 million. Earnings per share fell 10.0%, to $0.09 from $0.10.
Windstream’s shift to more profitable business services should let it keep paying quarterly dividends of $0.25 a share, for an 12.1% annualized yield.
However, the stock trades at a high 20.1 times Windstream’s projected 2013 earnings of $0.41 a share.
Windstream is a hold.
