An earlier post listed Lehman Brothers "10 uncommon stocks" with WCOM being one of the ten. The following is their detail write-up on WCOM.
WORLDCOM, INC.
Price $48.44 Dividend Nil
12-Month Range $49-28 Yield Nil
EPS 1997A $0.40 P/E 1997A NM
EPS 1998E $0.86 P/E 1998E NM
EPS 1999E $2.10 P/E 1999E 24.5
Note: 1998 estimates are for WorldCom alone, 1999 includes MCI.
Company Description: WorldCom, Inc., after the closing of the
MCI acquisition, will be the second-largest long distance company
in the United States. It will have assets in the key growth areas of
telecommunications services (including local, international, data
services, and Internet) and a very strong management team.
Fundamental Opinion: Our 12-month price target of $65 assumes
that MCI/WorldCom will trade at 25 times our 2000 EPS estimate
of $2.66. It also assumes the stock trades at 9.5 forward-year
EBITDA, which we view as conservative, as we forecast EPS and
EBITDA growth in the mid-20% area beginning in 1999, and we
expect the multiple to improve as WorldCom demonstrates
consistent strong performance. We believe that the combined asset
base of MCI/WorldCom positions it superbly for large-scale growth
in the industry. The combined company will have a 30%-plus share
in the U.S. business long distance market, providing a platform to
fully exploit its leading position among U.S. carriers in the fast-growing
international, data/Internet, and CLEC sectors. In addition,
MCI/WorldCom's international and non-U.S. network presence,
notably to and in Europe, enables it to address two-thirds of the
global telecom services industry. We believe that the combined
company will deliver far and away the fastest top-line growth (15%-17%
per year) among its major large-cap peers, with EBITDA
growth augmented by significant merger-related cost synergies.
Key drivers of growth are capturing share from monopolies in the
local phone market and in foreign countries (something WorldCom
has already demonstrated a strong ability to deliver) and
participating in the continuing explosive growth of the Internet. In
its three key growth markets (local, Internet, international), we
believe that WorldCom will grow revenues about 50% annually
over the next five years.
The most important challenge for MCI/WorldCom will be to
successfully integrate operations and realize the cost synergy
potential of combining the two companies, a challenge we view as
highly achievable given WorldCom's strong track record of
acquisition integration.
Technical Opinion: WorldCom has moved about 10 points above
its 200-day average, suggesting the stock is overbought and due for
a consolidation. However, support in the $42-$44 range looks very
strong, and after some hesitation, the stock is likely to work
considerably higher (our technical target is $60-$62). This is a very
powerful pattern.
Lehman Brothers Inc. makes a market in the securities of WorldCom, Inc.
Lehman Brothers Inc. is acting as financial adviser to MCI in the merger with
WorldCom, Inc. |
