A disappointing day. Individual Investor reiterates their Buy recommendation:
fnews.yahoo.com
Dec 16, 1999
Shares of Metamor Should Appreciate in Step With Xpedior
Senior Analyst: Garrett Bekker (12/15/99)
Shares of Metamor Worldwide (NASDAQ:MMWW - news) have appreciated more than 50% since the beginning of November. Investors have piled on in anticipation of a projected IPO for its Xpedior (NASDAQ:XPDR - news) division.
That unit finally hit the markets on Thursday in a well-received offering. It appears that we were wildly conservative in terms of Xpedior? s initial pricing and reception. Previously we assumed that the IPO would be priced in the $13-$14 range but instead went off at $19 per share.
Sahres have subsequently zoomed to $29 in mid-day trading giving Xpedior a market cap of $1.45 billion and valuing Metamor?s stake at $1.16 billion. Considering that Metamor has roughly 34 million shares outstanding, this translates into $34 per share when Metamor distributes its 80% stake to shareholders tax free next year, a not insignificant fact considering Metamor is currently trading around $30. Shares of Metamor slipped nearly $3 on the news, as investors possibly expected an even greater pop in the Xpedior offering.
Xpedior?s shares should continue to appreciate up to levels in line with competitors such as Viant (NASDAQ:VIAN - news) , Proxicom (NASDAQ:PXCM - news) , and Scient (NASDAQ:SCNT - news) . These companies trade at 7-8 times projected calendar 2000 revenue. Xpedior is estimated to have $150 million in revenue this year and could bag $250 million in revenue in 2000. Sales are currently growing at a 100% annual clip). To trade in line with the comparables, Xpedior should be valued in the $1.75 - $2 billion range which roughly translates into between $41 - $59 per share to Metamor. Granted, such asset plays have fallen out of favor with the market but this value, coupled by a projected 30%+ organic growth rate from Metamor?s continuing operations after Q1 2000, makes Metamor extremely attractive at these levels.
Metamor has completed the sale of its Project Support business as well as its Software solutions division and is now a pure-play information technology (IT) company. The company offers a wide spectrum of services including application development, eBusiness, ERP implementation, Internet/Intranet systems integration, training and technical documentation.
On another front, Metamor has recently been focusing on fully integrating its core IT solutions businesses which should enhance the company?s ability to cross-sell various services in the future. Indeed, we believe that this process has already begun as Metamor has recently won four large multi-year contracts worth over $50 million. This integration, coupled with plans to spend an incremental $10-$15 million to increase brand awareness, should enable Metamor to capture an increasing amount of business.
To be sure, Y2K issues will negatively impact fourth quarter 1999 and first quarter 2000 results, but we remain bullish about Metamor?s prospects. We believe that a dramatically improved outlook for the IT industry in the later portion of 2000 coupled with the value of the Xpedior IPO will continue to drive the stock higher. We reiterate our buy rating and are raising our price target to $55, which could prove conservative.
Analyst: Will Frankenhoff Updated 12/16/99 with MMWW at $30.25
Recommended 12/11/99 at $37.31 |
