i talked with the Kaufman analyst today and found his justification for a $93/share 12-month price target lacking.
in a nutshell, the $93/share figure is based on this reasoning: (he's heard) L3 will spent $2.5 billion on buildout in '99; he thinks L3 deserves a valuation of five-to-six (let's say 5.5) times plant, or ~$14B; divide by 150M shares and you get... $91/share ("oops"). i said that $2.5B spent in '99 won't translate into $2.5B of lit network in '99, but he didn't seem to care.
i asked about valuation relative to QWST and all he could say about QWST was "i don't follow it", "they're doing IP + switched voice, LVLT is IP-only", and "i think QWST will get bought out; L3 is here to stay." why, i asked. "WorldCom will need more backbone networking; QWST will sell out." oK. not a lot of insight on QWST.
the impression i was left with was he likes LVLT because he "likes the story, it's a a great story", there's momentum, he made a lot of money on MFS, and it's media-genic: "IP telephony", "all-IP fiber optic network", "James Crowe", "MFS", "Kiewit", "Internet", "bandwidth", etc. he thinks whoever places the LVLT debt (SSB?) will come out with a wave of PR (Grubman) that will drive the stock for a while. he also speculated that more acquisitions were in the offing, sustaining the media spotlight trained on the company.
IMO this is the essence of the LVLT phenomenon: rosy memories of MFS, trendy story, momentum, short on specifics. i'll wait until the honeymoon is over and the price retreats to reality.
w/ no disrespect toward LVLT shareholders,
mark |
