CREDIT SUISSE FIRST BOSTON CORPORATION
Equity Research
Americas
Integrated Telecommunication Services
STRONG BUY
Target Price: 11.00 (US$)
XO Communications (XOXO)
2Q01 Rpt'd: Debt Restructuring is the Issue
Summary
On July 26, XOXO reported solid 2Q01 results, with revenues and EBITDA in line
with our forecasts.
2Q01 revs were $306.8M, up 11% sqt'ly and 61% y/y, 1% above our forecast. Voice
revs of $147.8M were up 13% sqt'ly and 61% y/y, 3% above our forecast. Data
revs came in at $149.0M, up 5% sqt'ly and 52% y/y, 5% below our forecast.
Integrated voice and data revs (XOptions), newly broken out into a separate
category, were $8.5M, up 136% sqt'ly, over 3-fold above our forecast.
EBITDA loss for 2Q came in at $70.7M, a $6.4M sqt'l narrowing but $0.9M wider
than our forecast. Higher than expected SG&A expenditures were partially offset
by the better than expected revenue results as well as lower than expected
operating expenses.
Lowering price obj by 58% to $11 to reflect the ongoing gloomy state of the
capital markets in the Telecom sector. Adjusted our DCF inputs as follows:
raised disc. rate to 20% from 15% (incorporating XOXO high yield bond prices
that now imply a 40% yield) and lowered terminal multiple to 8x from 11x. Our
new price target still represents over 6x upside vs. XOXO's current trading
level.
Despite the solid quarterly results which lead us to have a higher degree of
confidence that XOXO will be able to achieve 2H01 financial targets, we
highlight that a significant risk of a balance sheet restructuring remains for
the company, given that we forecast current cash balances will last only into
1Q03 and a large debt load (over $6B) will limit financing alternatives for
XOXO.
Reiterate Strong Buy. |
