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Windstream Divests Non-Core Assets to Focus on Core Business

Windstream Holdings, Inc. WIN recently announced that it has monetized the legacy EarthLink consumer Internet business to reduce capital expenditure and focus on core operations. The business was sold for $330 million in cash to Trive Capital — a Dallas-based private equity firm.

The divested business offers Internet access, online back-up, managed web design, web hosting and various email services to more than 600,000 customers throughout the United States. Windstream had acquired this business when it merged with EarthLink in February 2017, in an all-stock deal valued at $1.1 billion. Although it benefited from EarthLink’s expanded national fiber footprint and enhanced products and services, the company presently considers it a non-core business.

The strategic divestment was part of the long-term policy of the company to focus on its core network offerings. At the same time, Windstream is seeking diversification from legacy telecom services to more business, enterprise and wholesale opportunities. To this end, Windstream has made a significant financial investment to upgrade its network and product portfolio, including significant advances in software-defined wide area network (SD-WAN) capabilities and a new Cloud Core architecture.

In addition, Windstream is realigning its wireless network toward a software-centric model to meet increasing business demands and customer needs. The company is transforming its product portfolio and network in an attempt to enhance customer experience. The service provider claimed that customers from different sectors like regional banking, healthcare, retail and manufacturing purchased its SD-WAN service. The launch of a multi-featured SD-WAN solution and its cloud-to-cloud disaster recovery management solutions should rake in considerable profits.

The company’s focus on improving sales, cutting costs and pricing initiatives are commendable. Investments made in data center and fiber expansion will likely offer further impetus for revenue growth in the coming quarters. Expansion of its metro fiber network business in newer areas and its aim to extend the deployment of technologies over traditional copper telephone wires bode well. Windstream is also focusing on optimizing its last mile network and in turn cut costs.

However, over the past year, the stock has recorded an average loss of 76.5% compared with 9.3% decline for the industry. Wireless competition has resulted in a reduction in the company’s access lines, and has led to pricing pressure in the industry. As wireless carriers continue to expand and improve their network coverage while lowering their prices, some customers have chosen to stop using traditional wireline phone service and instead rely solely on wireless service. This trend is expected to persist, affecting the number of served access lines at Windstream.


Moreover, Windstream remains under pressure from losses in the wholesale business. These, in particular, include diminishing access lines, lower switched access rates and fewer minutes of usage. The company expects wholesale revenues to improve, albeit at a slower pace. Additionally, Windstream’s carrier transport business faces pressure as the telecom operators demand smaller amounts of copper-based dedicated circuits to transfer data traffic between different points within their network.

The asset sale is perhaps a strategy to stem the losses and improve liquidity to boost its share price performance. It remains to be seen what 2019 has in store for this Zacks Rank #3 (Hold) stock.

Some better-ranked stocks in the same space are United States Cellular Corporation USM, Sprint Corporation S and T-Mobile US, Inc. TMUS, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

United States Cellular surpassed estimates in each of the trailing four quarters, the average positive earnings surprise being 108.1%.

Sprint has long-term earnings growth expectation of 19.6%. It has surpassed estimates in each of the trailing four quarters, the average positive earnings surprise being 320.8%.

T-Mobile has long-term earnings growth expectation of 6%. It has surpassed estimates in each of the trailing four quarters, the average positive earnings surprise being 13.2%.

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