Why Windstream Holdings, Inc. Gained 30.3% in February

By Anders Bylund Markets Fool.com

WIN data by YCharts.

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What: Shares of Windstream Holdings, soared 30.3% higher in February, according to data from S&P Global Market Intelligence. The big move continued a sawtooth pattern in Windstream's stock chart, stretching back to the spinoff of Communications Sales & Leasing in the spring of 2015.

So what: Investors started sniffing good news in Windstream's vicinity around the middle of February, when telecoms of every stripe started reporting strong quarterly results. When the regional carrier's own fourth-quarter report rolled around near the end of the month, it turned out to be a muscular quarter and well ahead of Wall Street's earnings forecasts. Share prices rose as much as 14% the next day alone.

Now what: The company retired $3.5 billion of debt in fiscal year 2015, helped by the CS&L spinoff. That will continue in 2016, as Windstream starts selling some of its remaining 20% stake in the networking hardware operation. Lightening that load will lift the bottom line, since interest payments consumed more than 14% of Windstream's top line in 2015. Anything the company can do to get away from $5.2 billion in long-term debt is helpful.

In February, Windstream sketched out a path toward a lighter debt load, and proved that it can deliver solid business results at arm's length from CS&L's hardware assets.

The stock still has a long way to go before shareholders at the spinoff date can start counting their profits. In the meantime, the stock looks incredibly affordable. Windstream sports a 10.3% return on equity but shares are trading at just 0.1 times trailing sales. Compare this to far larger sector rival AT&T , and you'll find similar ROE figures but a price-to-sales valuation that runs more than 13 times higher. And I'm not just cherry-picking comparisons here -- smaller rival CenturyLink , for example, sits on a 1.0 P/S ratio even though its return of equity stops at just 6%.

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This looks like a mismatch between share prices and shareholder value, even after a robust correction in February.

The article Why Windstream Holdings, Inc. Gained 30.3% in February originally appeared on Fool.com.

Anders Bylund owns shares of Communications Sales & Leasing. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.