U.S.

Research
Published by Raymond James & Associates

WIN: Upside in 2Q; Adjusting Estimates

Frank G. Louthan IV | (404) 442-5867, Alexander Sklar | (404) 442-5804
Windstream Holdings, Inc. (WIN): $5.05
Technology & Communications | Telecommunications Services
Rating: Outperform 2 | Target Price: $20.00
Market Cap. (mil.): $206 | Suitability: High Risk/Speculation

Summary

Strategic Sales Acceleration. After steady increases the past few quarters, strategic sales increased to
50% of total enterprise sales in 2Q (53% in June), up from 40% last quarter. With the sales funnel continuing
to expand and major product enhancement slated for later this year, we see this heightened level of strategic
sales as sustainable.

Outlook and Cost Cutting. Windstream continues to take cost out of the business, and we continue to
believe this can continue for several years. Interconnection costs are the most obvious as the UCaaS and
SD-WAN products are rolled out, as well as, related costs that can come down as they roll out these
services.

Trial Wrap-Up. We attended the closing arguments for the Aurelius trial (see related note here). We remain
confident that the trial will result in Windstream's favor, however the potential for an appeal remains,
potentially lengthening the outcome.

Valuation: We believe EBITDA and FCF expectations remain low, which could help shares appreciate from
current levels. Our $20 target price is based on ~5x 2018E EBITDA and ~5x FCF/share, a discount to the
telecom services peer group (both 6x) that accounts for its leverage and the overhang from its current legal
dispute, which form the basis of our High Risk/Speculation suitability rating. That said, we believe a positive
resolution of the legal case will potentially drive shares to our estimation of fair value 2018, although the
timing of that event is likely to be late 3Q.
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Risk and Disclosure information, as well information on the Raymond James rating system and suitability
categories, is available at www.rjcapitalmarkets.com/Disclosures/Index.

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