Well, I decided to place a skeptical eye upon GX and look at the quarterly results a little closer through the CSFB looking glass. Here's what I've concluded.
Based on their report, it appears CSFB is very conservative in their forecasts going forward. After the 2Q results, CSFB lowered their revenue targets to the very low end of the range which GX provided for the rest of '01 (6.4B versus "Global Crossing has lowered its 2001 cash revenue target to the $6.4-6.9B range"). In addition, CSFB adjusted their CAPEX estimates to the high end of what GX guided for '01 (4.5B versus "The company also now expects 2001 capex to come in below $4.5B, down from a former $5B budget").
For '02 "We are now cutting '02 cash rev by $1.4B to 7.0B". This states that they expect revenues for '02 to increase at a dismal 9.4% (7B - 6.4B / 6.4B). They extrapolated the cut in CAPEX as a percentage of '01 to '02. Therefore, CAPEX was decreased to 2.25B from 2.5B.
CSFB states that although GX claims to achieve FCF+ by late '02, their model tells a different story, admittedly because of change in their outlook on IRU revenue growth.
Using their model, they suggest that there will be a funding shortfall of 80M in '03 and 400M in '04. FCF+ is not going to be reached until '05.
From their report:
"While we have raised our deferred IRU revenue (including swaps) estimate for 2002 by $550M to $1.7B (but still below the company's target of $2.0-2.5B), we continue to expect a 15% y/y decline and believe that investors should be extremely cautious in assuming substantial long-term revenue growth from this segment from the 2001 level."
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It appears CSFB is on the very conservative side when putting their model together. They seem to take the very low end of revenues and very high end of CAPEX, with very conservative growth rates (which may be justified if the economy continues it's current pace). Their biggest concern is the mix of revenues, which was much more weighted toward IRU sales than expected, and the future growth rate of that revenue base.
It's all based on the economy (big surprise). But based on how CSFB is looking at GX, I can't believe it is as bad as the stock price is telling. It's difficult for the investors to determine, because they create few press releases for IRU sales. The only news we hear of are the commercial contracts, which we can see from the 2Q and current lack of PR, is worse than expected.
All in all, it appears like we'll just have to wait until the next quarterly results to determine how it pans out. Of course by then, it may be too late (for the stock price).
It was also interesting to note that CSFB used the word "swap" 8 times in their report, even though GX strongly insisted they weren't "swaps". It was alarming though how much of the revenue was placed under this category for the latest quarter (345/567M for IRU revs). How much of this is due to valid capacity agreements versus redundancy for balance sheet improvements? We may find out in the next earnings release if they die down.
My conclusion is that CSFB's model seems to be pessimistic at best, and it will not take much to go against the grain of their expectations: economy turn around, improved commercial sales (BK competitors), EXDS sellout & new contract, etc.
I realize a lot of this has already be discussed. This is mostly for my own benefit ;-)
At this point, I'm still holding. |
