Why CenturyLink Stock Has Dropped Toward All-Time Lows

How Investors Reacted

Market participants viewed Monday’s filing delay as a sign that the company may have erred in buying Level 3, which many bulls initially argued set up CenturyLink for more growth than other peers in the wireline industry.

CTL stock responded with a 6.3% decline on Monday to $12.15 per share. That loss devastated shares on a historical basis, as Monday’s settlement was the lowest since 1994. CTL is now down 19.8% since the $15.15 close on Dec. 31.

The Bigger Picture

The most baffling aspect of CenturyLink’s story this year is its underperformance relative to the broader market and its broader industry, which, by most accounts, have been firing on all cylinders. Not only is the S&P index up over 11% in 2019, but competing telecom firms AT&T Inc. (T) and Verizon Communications Inc. (VZ) are also up 5.1% and 0.01%, respectively.

The reason for CenturyLink lagging behind other telecoms appears to be the troubles arising from the Level 3 purchase. Several analysts cite the acquisition as a current headwind for the company, with Amy Yong from Macquarie Group Ltd. (MQBKY) noting the deal could conjure “near-term disynergies before synergies” due to Level 3’s declining consumer business. Level 3 and CenturyLink aren’t the only wireline companies experiencing falling consumer revenues; Windstream Holdings Inc. (WIN), for example, filed for bankruptcy last month because of this declining revenue trend.

Analyst downgrades have snowballed from there. Citigroup Inc. (C) issued a “Sell” rating on Feb. 5 and forecasted a 26% decline. A couple weeks later on Feb. 20, RBC Capital Markets downgraded the stock. And on Feb. 26, Bank of America Merrill Lynch lowered their rating from “Buy” to “Neutral.”

Now with Windstream insolvent and other wireline peers like Frontier Communications Corp. (FTR) ditching their dividend policies, CenturyLink occupies a precarious position in its sector. The firm wants to be a leader, but its options for winding the debt load while also bolstering investor appeal appear to be few and far between.

Looking Ahead

There’s no denying the interesting nature of CenturyLink’s year-to-date weakness. Investors always notice the companies that are left behind by a bull market, and the S&P’s double-digit return in 2019 makes CTL’s 19.8% drop stick out like a sore thumb.

If it cuts its dividend altogether to help pay down the debt taken on from the Level 3 purchase, the company’s stock may experience further weakness while investors and analysts continue to consider Level 3’s value to CenturyLink’s overall business. Despite the discount posed by the stock’s 25-year low, retail investors may want to take a wait-and-see approach to CenturyLink as it focuses on reversing the declining revenue trend.


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