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On Friday, Citi analysts reinstated a Neutral rating with a price target of $5.30 on Uniti Group (NASDAQ:UNIT) stock, which currently trades at $4.85 with a market capitalization of $1.19 billion. According to InvestingPro analysis, the stock appears undervalued based on its Fair Value metrics. The reiteration comes after a period where the rating was suspended. Citi’s Michael Rollins provided insights into the decision, citing the upcoming merger between Uniti and Windstream, expected to be finalized in the second half of 2025. The analyst expressed a strong belief that the merger has a very high likelihood of completion and that it promises to enhance Uniti’s investment capabilities in strategic segments, as well as offer the flexibility to monetize the ILEC (Incumbent Local Exchange Carrier) and potentially achieve better value over time.
The merger between Uniti and Windstream is anticipated to bolster Uniti’s position by allowing it to better navigate legacy challenges faced by Windstream. While the company maintains a healthy current ratio of 1.87 and offers an attractive dividend yield of 12.37%, Rollins noted that Uniti is not expected to generate free cash flow (FCF) until 2030, which is later than the initially guided 2026. The delay is attributed to Windstream’s ongoing legacy headwinds. InvestingPro data reveals that the company operates with a significant debt burden, which could impact its financial flexibility.
Rollins also mentioned that the current forecasts might be revisited if certain conditions are met. These include Kinetic, Windstream’s brand for its retail internet service, outperforming expectations, the fiber assets demonstrating stronger growth and returns that could support a higher multiple, or an accelerated improvement in the company’s net debt leverage.
The analyst emphasized that these factors could lead to a reassessment of the thesis regarding Uniti’s stock. However, as of now, the expectation is that Uniti will not see free cash flow generation until the latter part of this decade. The merger is seen as a strategic move that could eventually lead to a more favorable position for Uniti in the market. For deeper insights into Uniti’s valuation and financial health, investors can access comprehensive analysis and 12 additional ProTips through InvestingPro, which includes detailed research reports covering over 1,400 US stocks.
In other recent news, Uniti Group reported first-quarter earnings that did not meet analyst expectations. The company posted adjusted earnings per share of $0.05, falling short of the consensus estimate of $0.09. Revenue also came in below projections at $293.9 million, compared to the expected $296.56 million, although it marked a 4% year-over-year increase for core recurring strategic fiber revenue. Despite these results, Uniti Group highlighted a 40% increase in consolidated bookings compared to the previous year and noted a decline in the capital intensity of its fiber business. Additionally, Uniti updated its outlook for 2025, projecting revenue between $1.196 billion and $1.216 billion and adjusted EBITDA ranging from $966 million to $986 million. The company ended the quarter with $592 million in unrestricted cash and cash equivalents and reported a leverage ratio of 6.09x. In other developments, Uniti’s shareholders have approved an upcoming merger with Windstream, which is expected to close in the third quarter. The merger is anticipated to create a significant player in the fiber industry, enhancing Uniti’s growth prospects.
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