5. A GROWTH STORY: WIRELESS FACILITIES
by John Bronstein, special to The Bull Market Report
The stock of Wireless Facilities (WFII, $38) has been notably strong
lately. Investors seem to share our optimism for the outlook of this
global leader of telecommunications outsourcing. It helped that a
portfolio manager mentioned the stock favorably on CNBC several days ago.
This sent some of the shorts scurrying for cover, and it also brought some
additional attention to the favorable fundamentals in this story.
Wireless Facilities Inc. began operations in early 1995 and went public in
November of 1999. Headquartered in San Diego, Wireless Facilities has
more than 1780 employees. It offers network business consulting, network
planning, design and deployment, and network operations and maintenance
services for the wireless telecommunications industry. The company's
customers include both early-stage and mature providers of cellular, PCS
and broadband equipment and data services. For the nine months ended
9/30/00, revenues were $176 million, up from $57 million. Net income was
$23 million, up from $5 million. Results benefited from strong industry
growth of mobile voice and data networks in addition to fixed wireless
broadband solutions. 4Q00 results will be out on Valentine’s Day after
the close.
Those are certainly impressive results. What is interesting is that the
company has been undergoing a transition. Prior to January 1, 1999, it
provided only design and deployment services. That changed in the last
fiscal quarter of 1999, when the company added network maintenance and
business consulting services. Toward the end of 1999, the Company entered
into its first contracts for network planning. This mix has enabled the
company to cross-sell its services and to offer a fuller set of services
to attract new customers.
At the same time that it was increasing the scope of services, the company
was expanding geographically. During the period ending September 30,
2000, Wireless Facilities formed a subsidiary in the U.K., which entered
into new contracts in Europe, the Middle East and Africa. Revenues from
international operations in 29 countries contributed 27% of Wireless
Facilities’ total revenues for that period.
In early October, the company announced that it had been picked by Nokia
(NOK, $37) as one of four main partners for turnkey implementation of
Third Generation (3G) and GSM networks in Europe, the Middle East and
Africa. Wireless Facilities will provide turnkey network design and
deployment services for 3G and GSM networks supplied by Nokia, including
radio frequency engineering, site acquisition and development,
installation and commissioning.
In mid-December, the company was selected by U.S. Wireless Corporation
(USWC, $7) as the prime contractor in the build-out of its Washington, DC
location and traffic network. Wireless Facilities will provide project
management, RF network design, site acquisition, preparation, and other
installation services.
This is clearly a growth story, and we like the company. However, this
stock is not for the faint of heart. Of the 43 million shares
outstanding, insiders hold 66%. We like large insider ownership, but it
cuts down the float considerably. With institutions owning another 26% of
the company, the stock is volatile, with a 52 week high of $163 and a low
of $27.
Aside from volatility, understand that some of the company's clients are
CLEC’s with financial troubles. Also understand that in October there
were detractors who pointed to non-scalability of their business model,
which relies on human capital to drive revenue growth, and who were
concerned that "unbilled accounts receivable" might be being recognized as
revenue. Concerns about possible overly aggressive accounting contributed
to a sell-off at that time. Since then, the stock appears to have
bottomed and has performed nicely as of late. For aggressive investors
who understand and are able to assume the risks, we think this stock's
fundamentals are impressive. |
