First Union report:
LCCI: REITERATING OUR STRONG BUY AFTER MEETINGS WITH MANAGEMENT
LCC International, Inc. (LCCI-OTC) Stock Rating: 1
Jennifer A. Murtaugh
Jill A. Desmarais
Price Target: $14
PRICE: $6 3/8 October 13, 1999
52-WEEK RANGE: $9–$3
DIVIDEND/YIELD: none/nil
EPS ESTIMATES (FY 12/31) 1998A 1999E 2000E
Q1 – March $0.04 ($0.01)A $0.04 AVERAGE
Q2 – June (0.10) (0.13)A 0.07 VOLUME: 60,460
Q3 - September (0.36) (0.06) 0.08
Q4 – December (0.12) 0.04 0.09 INSIDERS
---- ---- ---- OWN: 23%
Full-Year EPS ($0.54) ($0.16) $0.27
INSTITUTIONS
P/E Ratios NMF NMF NMF OWN: 22.9%
EPS estimates represent normalized income from 3-5 YEAR
continuing operations only (do not include EPS GROWTH
products revenue) RATE: 25%
SHARES OUTSTANDING: 15.7 million
MARKET CAPITALIZATION: $100.1 million
KEY POINTS
-- LCC's current backlog (approx. $200 million) is showing significant
improvement from three months prior when backlog was virtually
nonexistent
-- Experiencing a run rate of approximately 35 new hires each week,
LCC is in a true hiring mode
-- We think LCC is perfectly positioned to benefit from new work
created by the needs for additional capacity as North American
wireless infrastructure spending continues
SUMMARY
Yesterday, we had the opportunity to travel with Tom Faulders, LCC's
chairman and CEO, to visit institutional clients. All of the meetings
had a very positive tone and offered further evidence of the
rebuilding process now in place at LCC. Below, we have highlighted
four key aspects taken from our meetings that we believe will increase
investors enthusiasm for the LCC business plan.
Significant Backlog Improvement. Tom Faulders indicated the company's
current backlog is approximately $200 million. This is up
significantly from three months prior, where the company's backlog was
virtually nonexistent. Management expects this backlog will carry it
into 2001. Most of the backlog is associated with the XM Satellite
contract, and we have included this in our current model and revenue
forecast. Our current 1999 and 2000 revenue estimates are $85 million
and $162 million, respectively.
LCC Is In A True Hiring Mode. Unlike prior quarters, the company is
in a true hiring mode. Currently, LCC has over 200 new positions to
fulfill current or anticipated work. This number of new positions is
significant if one considers LCC has only 450 employees in total. The
company is currently experiencing a run rate of approximately 35 new
hires each week. Management approximated that the current work force
is working at close to 100% utilization. Additionally, Faulders
indicated that the attrition rate for the company has declined from
60% three months ago to 30% today. While this turnover rate is still
fairly high, it represents a significant improvement from prior
quarters.
North American Wireless Infrastructure Spending Continues. A
continuing theme in yesterdays meetings was the robust nature of
wireless spending in the U.S. today. AT&T, Sprint PCS, and Nextel all
have publicly disclosed that they plan to spend a minimum of $1.5
billion to improve their current wireless network infrastructure in
2000. As national “one rates” continue to penetrate the market, the
need for carriers to improve their capacity has become a major
concern. This industry trend perfectly positions LCC to benefit from
new work stemming from additional capacity needs. Interestingly, each
of the three carriers aforementioned are LCC's largest customers--
Sprint PCS is the largest domestic customer with approximately 9% of
LCC's North American revenue.
Competitor's Valuation Bodes Well For LCC. Recently, one of LCC's
main competitors, Wireless Facilities, Inc. (WFI), filed to do an
initial public offering. WFI is slightly smaller than LCC in terms of
revenue, but unlike LCC has been profitable in the last five quarters.
However, at the midpoint of the proposed pricing range for WFI, the
market capitalization is expected to be approximately $500 million.
This valuation looks especially compelling for LCC if one considers
LCC's current market capitalization is approximately $106 million.
In conclusion, we walked away from yesterday's meeting with continued
excitement about the momentum of LCC right now. In the past three
months, the company has converted its WorldCom MCI note to equity,
signed a significant services contract with XM Satellite, completed
the divestiture of its products division, and has entered into a $17
million contract with Miserfone Telecommunications. Our 1999 and 2000
estimates remain unchanged at ($0.16) and $0.27, respectively. LCC
expects to report results for Q3'99 on or around November 11. |
