Tier 1 Research Reiterates Buy and $2.50 Target
INAP: Come Monday, It (Should) Be Alright; Buy on FUD-induced Weakness
Internap created a lot of FUD (Fear, Uncertainty, and Doubt) by postponing its 4Q03 earnings conference call five minutes after it was to begin. The explanation given is that the company needed more time to complete the audit and close the books relative to its two acquisitions and completion of the year-long restructuring in 4Q03. The new date is 2/9/04 before market open. We cannot rule out a negative reason for the delay, but it seems highly unlikely given that the secondary was filed two weeks after the close of 4Q03 and shouldn't have been pursued if results are to be weak. Accordingly, we would be buyers on the weakness in the shares shown in after market trading. Our price target remains $2.50 with upside potential should our expectations of a major new partnership(s) and positive EPS guidance prove correct.
Lots of FUD: Internap created lots of FUD by postponing its 4Q03 earnings call five minutes after it was to begin. T1R heard speculation ranging from: 1) INAP being acquired, 2) attempts to complete the secondary before 4Q03, 3) an SEC inquiry, 4) management resignations, and 5) major partnerships. With respect to these possibilities, INAP confirmed that it was not due to any of the first four items. The question of possible partnerships received an answer of no comment. While we cannot rule the possibility of a negative reason for the delay, we see a higher likelihood in this just being an issue of timing for closing the books.
Egg On Management's Head: It was strange enough that the secondary offering was announced with 12 minutes left in trading on 1/13, but INAP is again showing a lack maturity as a public company should this delay prove to be the inability to meet an announced deadline. We will address this issue in more detail once a deeper explanation is given on Monday.
Still Expecting Strong 4Q03 Results: INAP was obviously not able to answer our questions relative to what the delay means to 4Q03 results. The accounting adjustments mentioned in the PR for the acquisitions should be the only change. Outside of this, we still expect a strong Q/Q uptick to show through. Our estimate are: $37.6mn in revenue, $4.2mn in EBITDA, and a $0.03/share loss in 4Q03.
Reiterate Buy and $2.50 Target: Singer Jimmy Buffett said, "Come Monday, it'll be alright," and we believe this is the most likely scenario once 4Q03 results are announced. We continue to forecast a strong year ahead as INAP hits an inflection point on the top-line that will carry rising incremental profitability. Further, we believe the capital from the pending secondary has good ROI outlets that can offset the dilution and drive up valuations beyond our $2.50/share target price. We would be buyers on weakness created in the shares and would use the support shown twice at $2.10/share in the past few months as the low water mark. |
