PW's Hodulik doesn't get it, but that's OK. Look for a very strong conference call next week, and possibly some announcements before (though they may save it for the CC) - incremental things like maybe some % of GBLX's undersea fiber, as well as some larger relationships.
I'll post the two PW reports (WCII/TGNT: fwiw, these reports were NOT done by or associated with PW lead telco analyst Eric Strumingher), and some outtakes from the Gilder Tech Report when I get a chance.
In the meantime, here's some recent comments out of II rated CSFB telco analyst Frank Governali (a nice email could get a copy of the full CSFB DCF model):
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Recent stock price weakness presents attractive buying opportunity.
Year-end price target remains $63.
· WCII's stock price is off 17% from its recent high on February 3, 1999 closing price, co-incidentally the day it issued common stock at $41 3/4.
· There is no fundamental reason for the sell off, as far as we've been able to determine. Fourth quarter results should be reported in-line with current Street expectations.
· Comparable high quality CLECs have also traded off since the beginning of February. TGNT is down 4.4%, NXLK is off 18.6% and MCLD is down 15.5%. But these stocks have outperformed on a YTD basis.
· Our valuation analysis produces a year-end 1999 price target of $63.
Given the potential for nearly 50% upside, we believe, the recent
weakness in WinStar's stock represents a good buying opportunity.
Investment Summary
Buying Opportunity
WinStar's stock has been under pressure since February 3 when it issued 4.2 million shares of common stock at $41 3/4. We believe that there are no fundamental changes at the company driving this decline of 17%. Factoring in the increased number of shares in the equity offering, our ten-year DCF now produces a year-end 1999 price target of $63. It had been $68.
Fourth Quarter Results
We expect WinStar to report fourth quarter results right in line with current Street expectations. More specifically, we are looking for the addition of approximately 60,000 access lines, the same number of lines added in the third quarter. The average revenue per line should show signs of improvement as WCII sells more data products. We are targeting CLEC revenue of $54 million, up 46% sequentially. The EBITDA loss in the quarter should be about $80.8 million compared to a loss of $48.3 million. The more significant loss stems from greater spending to develop international markets. Our loss per share estimate is $3.87.
Price Performance
Other CLECs have also traded off in the same period as WinStar. However, its closest comparables, NEXTLINK and Teligent are up strongly for the year. McLeod, another high quality operator is also up for the year, whereas WinStar is down 9.3%. The table below illustrates comparable price performance trends:
Calculated Value Creation
Last week WinStar bought 95% of Macrocom, which is 38 GHz spectrum owner in Argentina. The purchase is part of WinStar's international plan which will take it to the top 50 international markets over the next five years. The company plans to initiate service by September 1 in Buenos Aires, which it sees as a $500 million data market. Also last week WinStar balked at the high price of spectrum in Australia, and will seek to enter that market in a more cost effective basis in the future. It's a good sign that management has its eye on value as it searches for avenues to enter the international markets.
Potential For Significant Upside
Our ten-year discounted cash flow analysis on WinStar, using a 14% discount rate and an 8 multiple of free cash flow, produces a year-end 1999 price target of $63. Our model has been adjusted for the issuance of new shares. (Prior to the recent equity offering, our price target was $68.)
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Again, look for a strong CC for all appropriate parameters, and possibly some announcements before, definitely during and likely after the CC. Additional coverage is also expected.
*** Commentary is MY OPINION ONLY - Do your OWN due diligence *** |
