Citi Defines Windstream 'Bull Case' After Meeting With Management

In a report published Monday, Citi analyst Michael Rollins maintained a Buy rating on Windstream Holdings, Inc. WIN, with a price target of $15, after meeting with CEO Tony Thomas and Vice President of Capital Markets & IR, Mary Michaels.

The management appears to be optimistic about the opportunity to improve the company's financial performance. "We believe a bull case scenario for Windstream has emerged for the company to modestly grow revenue from its enterprise CLEC & in-region SMB segments, improve OIBDA with some incremental cost cutting, and eventually generate FCF of at least $2/share," Rollins said.

This may appear to be "quite optimistic," especially against the backdrop of the recent financial metrics and capital intensity. "We pieced together a model based on management’s aspirations for segment performance and found the company can significantly reduce the pace of revenue and OIBDA erosion heading into 2016 and then create a path for better financial performance over time," Rollins wrote.

In the report Citi noted the key takeaways from the meetings as:

• Change in reporting structure and greater focus on contribution margins - This would alter the company's "selling behavior" away from its previous focus on lower margin deals to boost revenue prospects
• Network investments include increased spend of $130 million from CAF-I and elevated IT, which should decline in 2016
• Easing pressures on carrier revenue in the second half of this year, with legacy copper backhaul likely approaching a trough
• Lower-than-expected near-term cash taxes and pension, although this may be somewhat offset by higher cash interest
• The company being "open to asset monetization" and M&A

"Meanwhile, we believe the share price has underperformed partly from a combination of post-spin volatility, weak peer-group performance, & pending removal from the S&P MidCap 400 index," Rollins added.