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Portfolio Update

The Beat Goes on for the Lifelong Income Portfolio

By Roger S. Conrad, on Nov. 20, 2013

Meanwhile, the company continues to beat management’s targeted cost reductions, achieving $25 million in synergies from the SureWest merger three quarters ahead of schedule.

These cost savings, coupled with growth in Consolidated Communications’ broadband business, bolstered the firm’s third-quarter profit margins to 17.4 percent of revenue, compared to 5.4 percent 12 months earlier.

The company also continues to strengthen its balance sheet, reducing its net debt to 4.16 times its cash flow over the trailing 12 months. And there’s ample opportunity to reduce interest expenses ahead; Consolidated Communications’ seven-year bonds trade at a yield to maturity of 6.115 percent, versus their coupon rate of 10.875 percent.

With a payout ratio of 69 percent of free cash flow, Consolidated Communications continues to cover its dividend comfortably.

During the company’s conference call to discuss third-quarter results, analysts sounded skeptical of the telecom outfit’s ability to avoid the crackups that have afflicted its competitors. However, the latest numbers leave little doubt that Consolidated Communications is a sustainable enterprise.

Shares of Consolidated Communications surged after the firm released third-quarter results, suggesting that some short sellers headed for the exit. But short interest in the stock stands at 14.6 average trading days, suggesting that additional short squeezes could be in the cards–if the firm continues to execute.

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