Will Windstream Find Buyers?

With shares of Windstream (NASDAQ:WIN) trading around $7, is WIN an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

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T = Trends for a Stock’s Movement

Windstream provides communications and technology solutions in the United States. The company offers managed services and cloud computing services to businesses, as well as broadband, voice, and video services to consumers primarily in rural markets. As American consumers become increasingly more connected, companies like Windstream stand to see a rise in profits. If executed well, the business will be able to capitalize on a niche market that has yet to be tapped by the big players in the field.

Head on over to the next page to explore the technical landscape of Windstream’s stock…

T = Technicals on the Stock Chart are Weak

Taking a look at the long-term price chart of Windstream, we can see that the stock has been in a downtrend since its initial public offering. Currently, the price action seems to be pointing towards lower prices. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, Windstream is trading below its declining key moving averages which signal neutral to bearish price action in the near-term.

WIN

(Source: Thinkorswim)

Taking a look at the implied volatility (red) and implied volatility skew levels of Windstream options may help determine if investors are bullish, neutral, or bearish.

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

Windstream Options

28.69%

90%

93%

What does this mean? This means that investors or traders are buying a very significant amount of call and put options contracts, as compared to the last 30 and 90 trading days.

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Put IV Skew

Call IV Skew

April Options

Steep

Average

May Options

Steep

Average

As of today, there is an average demand from call buyers or sellers and high demand by put buyers or low demand by put sellers, all neutral to bearish over the next two months. To summarize, investors are buying a very significant amount of call and put option contracts and are leaning neutral to bearish over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.

E = Earnings Are Decreasing Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on Windstream’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for Windstream look like and more importantly, how did the markets like these numbers?

2012 Q4

2012 Q3

2012 Q2

2012 Q1

Earnings Growth (Y-O-Y)

-87.50%

-40%

-52.63%

83.33%

Revenue Growth (Y-O-Y)

26.22%

51.71%

49.32%

51.03%

Earnings Reaction

-4.36%

-9.72%

-7.45%

-10.37%

Windstream has posted increasing revenue growth rates while earnings have been declining. From these figures, the markets have clearly not been too happy with Windstream’s last four earnings announcements.

P = Poor Relative Performance Versus Peers and Sector

How has Windstream stock done relative to its peers, AT&T (NYSE:T), Sprint Nextel (NYSE:S), Verizon (NYSE:VZ), and sector?

Windstream

AT&T

Sprint Nextel

Verizon

Sector

Year-to-Date Return

-10.34%

39.75%

6.56%

10.82%

3.63%

Windstream has trailed its peers and sector by a significant margin.

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Conclusion

Windstream provides services to an area of the United States that is seeing significant signs of growth. However, the company may need to see a shift in business tactics that will improve earnings. Earnings and revenue growth rates have not pleased investors which has led the stock to see a consistent flow of selling. From this downtrend comes large year-to-date underperformance relative to its peers and sector. STAY WAY from Windstream for now.

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