Is CenturyLink Stock a Buy Near 52-Week Lows?

By Steve Symington Markets Fool.com

Shares of CenturyLink (NYSE: CTL) have fallen nearly 25% over the past year as of this writing, and trade within spitting distance of 52-week lows. Most recently, CenturyLink stock came under pressure amid mixed signals from multiple analysts on Wall Street.

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Conflicting opinions

Two weeks ago, for example, Goldman Sachs analyst Brett Feldman reiterated his sell rating on CenturyLink stock. Feldman simultaneously reduced his per-share price target to $19 from $21, representing a more than 20% discount from current levels. To justify his more bearish stance, Feldman noted he had reduced his estimates for both earnings and discounted cash flow going forward.

IMAGE SOURCE: CENTURYLINK.

Meanwhile, analysts at JPMorgan expressed a different stance earlier this week, arguing CenturyLink is undervalued relative to its peers and should be poised to outperform. JPMorgan also noted CenturyLink's dividend -- which currently sports an uncomfortably high 9.15% annual yield -- should remain intact.

Indeed, it's hard to blame them for that rationale with shares currently trading at below 12 times this year's expected earnings. And despite CenturyLink's high dividend yield and lofty 186% payout ratio, CenturyLink management has voiced their intent to maintain the company's payout going forward.

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Progress where it counts

But before we get there, perspective is in order. Remember that CenturyLink stock plunged more than 13% over just a few days this past October, when it announced it had agreed to acquireLevel 3 Communications(NYSE: LVLT)in a cash and stock deal valued at roughly $34 billion (including debt CenturyLink will assume).Of course, at that size, this deal is more of a merger of equals given CenturyLink's current enterprise value of just under $33 billion. But it's telling that shares of CenturyLink are currently trading at almost exactly where they stood after that initial decline six months ago. In short, though CenturyLink will continue to release quarterly earnings reports between now and the close of the acquisition, the market recognizes that CenturyLink's future is tied to the completion and subsequent integration of that enormous acquisition.

Incidentally, CenturyLink stock enjoyed a modest rebound from its lows over the past few days after shareholders of both companiesoverwhelmingly approvedthe merger last week, with 96.3% and 98.8% in favor at CenturyLink and Level 3, respectively. The companies have also secured approvals and clearances for the merger in Ohio, Utah, Nevada, Georgia, West Virginia, Connecticut, Indiana, and Louisiana, and expect to receive the remaining state, federal, and international approvals in time to complete the deal by the end of September this year.

So what do they stand to gain then? After the acquisition, CenturyLink anticipates free cash flow will be significantly improved by Level 3's almost $10 billion in aggregate net operating losses, which in turn should lower that payout ratio. That's not to mention the benefits of scale and infrastructure investment synergies both CenturyLink and Level 3 will enjoy through their combined fiber networks, as well as nearly $1 billion in expected annual synergies through operational efficiency and systems consolidation. Both companies also anticipate capitalizing on incremental revenue growth opportunities by deploying their product portfolios across the combined customer base.

"The combination of CenturyLink and Level 3 will significantly improve our global network capabilities, creating a company with one of the most robust fiber networks in the world," stated CenturyLink CEO Glen Post last week. "This expanded network should allow us to bring substantial operational and service benefits to our enterprise customers, as well as an enhanced customer experience."

As it stands, it's clear that uncertainty remains surrounding the impending merger. And even then there will be plenty of integration and consolidation work to do before CenturyLink and Level 3 can truly operate as a single, well-oiled machine. But assuming all goes as planned, I think CenturyLink stock at today's levels represents a compelling buying opportunity for patient, long-term investors.

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Steve Symington has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.