Is Now a Good Time to Consider Windstream?

Shares of rural broadband and telecom provider Windstream Corp. (WIN), which I first discussed here on January 18, 2010, at a price of $10.92, have recently pulled back about 10% to $12.70. But just view that retreat as an investment opportunity, if you can tolerate the risk.

Underscoring — WIN’s shares are not for the squeamish. If you can tolerate the volatility and you’re patient, though, you’re likely to be rewarded with WIN.

Windstream, with a presence in 16 states, will likely post an acquisition-aided 7% to 10% revenue gain in 2011, as broadband subscriber increases offset a phone revenue decline. Windstream should also benefit from a rise in business broadband subscriptions, as business formation increases with the U.S. economic recovery.

An impressive $1 annual dividend — good for a 7.8% yield at the current stock price — adds to the positive story.

The Thomson Reuters First Call FY2011/FY2012 EPS estimate for WIN are 81 cents to 84 cents, and each looks about 5% low, according to my analysis.

Technically, as noted, Winstream’s shares have dipped to about $12.70 from a high near $14.50 during the winter, and the stock’s has dip below the key, 50-day moving average is a concern. Even so, the view from here argues the uptrend will resume in 2011.

2011 Outlook: I view Windstream as a long-term play, but if you’re looking to sell WIN within the year, it’s probably best to take your profits after it rises to $17 to $19, if it fails to clear $20.

Stock Analysis: I consider Windstream to be a moderate-risk stock. If an investor has already purchased the company’s shares, I’d hold them. If not, I’d consider buying a 25% position in WIN now; then buy another 25% in one month, if U.S. economic conditions don’t worsen substantially. Under any circumstance, I wouldn’t buy more than 50% of my WIN position before June 2011, and I’d put a sell/stop loss at $8.

Disclosure: Lazzaro has no positions in stocks, but does own shares in two Pimco Bond Funds: PHDAX and PYMAX.

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