GST Telecom (GSTX) 4th quarter earning Message Board

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Technology Stocks : GST Telecom (GSTX) 4th quarter earning

GSTX 0.0200

+39.9%

Nov 24 11:36 AM EST

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To: MangoBoy who wrote (205)	10/13/1999 9:50:00 AM
From: SteveG	of 369

Fahnestock - Bauer: Investment Opinion: We are lowering our rating from BUY to HOLD. We think the stock will probably be in “show-me” mode for the balance of this year. As a result, these shares are likely to trade sideways until the visibility of the company's core operations improves. Key Points: · Access line additions are likely to remain flat (versus 2Q99) for the second half. Yesterday, after the close, GST announced 3Q99 revenues and EBIDTA guidance will fall short of our (and consensus) estimates. After talking to management last night, it appears a key contributor to the shortfall will be flat access line additions – a situation that could continue through 4Q99. The company now expects access line additions will approximate 31,000 for each quarter in the balance of this year. This would result in three quarters of flat additions and (by definition) decelerating growth. In and of itself this is not catastrophic – however, the company doesn't know WHY access line additions will be flat for the quarter and this is a problem (there's not enough information at this time to do a detailed diagnostic). Given the fact that guidance for line additions in the 4Q99 is also flat, it's unlikely the problem is as simple as a week or two of lost productivity associated with the installation of a new back office as was the case in 2Q99. · Core Telecom Revenues will be negatively impacted by more than just weak line growth. There are several key deviations to our 3Q99 revenue forecasts: Unbundled long distance service (a legacy business) will probably report lower revenues by $1.5 million than expected reflecting the company's decision not to participate in the heavy price discounting that has characterized this service during the quarter. An additional $1 million revenue reduction will likely reflect the issuance of credit to certain customers for cost reduction pass-throughs which should have been (but weren't) passed along during the second quarter. The result – core telecom revenues will likely fall $2.5 million short of the mark. Of less concern is the fact that construction revenues could fall $3 million short of expectations. This reflects the fact that the transfer of one or more route segments to Williams (OTC-WMB) may slip into the fourth quarter. · EBITDA will be impacted by a host of items. Certain engineering costs that were being capitalized in prior quarters will likely be transferred to the SG&A category during the third quarter as the company's networks are turned up. Additionally, certain expenses associated with the Williams deal will also be booked in the quarter. Why weren't these issues anticipated – we don't know. · Bottom line – visibility is low and growth is expected to be flat – these are not the conditions under which CLEC stocks do well. There is no question that GST is building a highly valuable asset. Its network plant is state-of-the-art and its geographic footprint is about as good as it gets. However until the visibility clears we think its safer to wait a bit on the sidelines. As a result, we are lowering our rating to HOLD from BUY.

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