Why We're Lukewarm on CenturyLink's Business

We continue to think

Finding sales growth remains the challenge for CenturyLink. Revenue of $5.9 billion in the quarter fell a bit shy of consensus estimates and was down 2% on a pro forma basis. Management is painting recent weakness as the result of a transforming business and has indicated that it is proactively moving away from low- or no-profit revenue--some of which consists of larger contracts--and is instead focusing on profitable revenue. We suspect low-profit revenue is a more pervasive challenge in the consumer segment, and we forecast revenue declines there each year of our five-year forecast. We expect business segment revenue to return to growth in 2019 and average about 1% annually through 2022. Overall, we see our long-term projections as consistent with management's narrative--we expect less than 1% annual consolidated revenue growth over the next five years but see EBITDA margin expansion to 39% in 2022, from 35% in 2017.

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