"Probably means this is a buying opportunity"
As sick and tired of the volatility as I am (and many others here have been on this hell ride a lot longer than me - my sympathies. The lesson I guess is watch out for exciting but high risk investments with large floats, significant convertible debt and relatively unknown technology in choppy markets), I still agree with your comment.
I once again touched most of the critical bases today to see if I could ferret out any WCII fundamental demons - and again came up empty handed. So I stepped up big time with some nearer term out of money options in anticipation of positive comments/reports after the conference call.
Here is the JP Morgan comment from this afternoon, followed by the First Call notes on their Jan 20th initiation of coverage:
WinStar should report fourth quarter revenue of $70 million, up 120% year on year on the back of 320,000 lines. WinStar's nearest competitor in the wireless CLEC space Teligent reported fourth quarter results on Monday and Teligent reported it had 10,000 line at the end of 1998 [and $479 THOUSAND in revenues].
EBITDA losses will likely rise to $80 million on the back of the company's aggressive launch of new services and markets in the fourth quarter. We expect the company to stress performance to plan and good results on the back of its aggressive marketing effort called the Millenium plan.
WinStar shares have been beaten up since the company closed its 4.2 million share equity offering priced at $41.75. The company has seen positive news flow stemming from strong progress overseas and continued endorsement of the wireless technology as a viable alternative to fiber. We believe the share decline has been the result of a combination of the equity deal placing new shares in the market, fading rumours of an imminent takeover bid by Worldcom and an ever-present and active short interest in the shares which historically has exagerated both upside and downside moves.
At $30, WinStar trades at a market cap of $1.2 billion At the end of 1998, a CLEC called Nextlink controlled by Craig McCaw bought spectrum similar to WinStar's in an effort to offer similar services beginning sometime in 2OOO. Nextlink paid $800 million for the spectrum, half of which came from an associated company. If we extrapolate the value of the spectrum Nextlink bought using the public price it paid to a third party for the other half, the total value is $1.2 billion.
In essence, based on the Nextlink spectrum purchase, WinStar is trading at spectrum value, leaving its business and assets trading at ZERO VALUE on an equity basis. We expect continued positive newsflow and financial performance from the company and we believe at current prices the company is a Strong Buy Opportunity based on our target price of $60 per share.
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January 20, 1999
J.P. MORGAN SECURITIES INC.
WinStar Communications (BUY)
INITIATING COVERAGE WITH BUY RATING; TARGET PRICE $60 PER SHARE
We are initiating coverage on WinStar with a Buy and a 12 month target
price of $60, 35% above yesterday's close. WinStar is a leading
national CLEC and one of the first to bridge the local "last mile" with a wireless solution. WinStar is one of only three companies in the United States we believe has the spectrum resources to exploit the
benefits of a national wireless last-mile approach. WinStar's network
architecture is similar to that of other CLECs, with local market switches connected via a nationwide fiber backbone. However, WinStar uses radio frequencies instead of fiber to access customers and provide local, long distance, and high-bandwidth data services to businesses. WinStar's wireless approach is faster, cheaper, and more flexible than fiber and will allow the company to address a wider target market quicker and more efficiently than its competitors. Driving WinStar to its target price will be its ability to turn on new markets and grow high-margin on-net lines that in turn will lead to strong financial performance. We expect the company to deploy networks and launch service in 15 new U.S. markets and six international markets in 1999. Market expansion should help drive
267,000 line adds in 1999 for a total of 589,000. Over the course of 1999 we expect the company will push up its proportion of high-margin on-net lines to 30% from 20% in 1998.
We project that WinStar will generate 49% compound annual revenue
growth for 1998-2003. We believe the company's EBITDA loss will trough in 1999. Higher revenue from market expansion and higher margins from on-net line provisioning will see WinStar exit 2001 with a positive EBITDA run rate. In 2002 we project the company will generate $137 million in EBITDA. We expect the company will achieve positive operating profit in 2003 and positive net profit in 2005.
The company has established a lead over its potential competitors by
signing an agreement in October with leading telecommunications technology equipment supplier Lucent, which will help WinStar fund and deploy its network. In our view, the relationship also alleviates certain concerns about the technological viability of the wireless approach. WinStar signed an agreement in December with Williams Communications to support its local networks with a nationwide fiber backbone. The new deal will allow WinStar to expand margins and concentrate on its core objective of expanding local connectivity.
We believe the CLECs as a group could increase their domestic revenues
to $22 billion by 2002 from about $2.4 billion in 1997 and WinStar's
approach positions it well to take advantage of this large competitive
opportunity. The Telecommunications Act of 1996 demonopolized the local market and broadened the range of services that can be offered by competitive local exchange carriers (CLECs) . With the opening of the local market to competition, we project that the regional Bells (RBOCs) will cede market share to competitive companies with technological cost advantages like WinStar.
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(Anyone else have the realization that sleep is neccesary?) |
