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Technology Stocks : Broadband Wireless Access [WCII, NXLK, WCOM, satellite..]
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To: SteveG who wrote (186)5/19/1999 1:12:00 AM
From: SteveG  Read Replies (1) of 1860
 
Fahnestock from earlier last week:

Investment Opinion: We are reiterating our BUY rating on WinStar Communications. Our revised year-end
asset value of $86 per share reflects a 13% increase over our prior estimate of $76. The change reflects a very
modest increase in our data forecast (which we believe is still understated). Our new $60 target reflects a 30%
public market discount. Key points:
· Yesterday WCII shares surged 6 points (12%) on volume of nearly 4 million shares. In talking with
management last night, it was noted that Tuesday was the second day of NEXTLINK's road show (the
company is selling 9 million shares of stock and $750 million of Notes). As the largest holder of LMDS
(28 GHz wireless) licenses in the world, NEXTLINK is heavily promoting the benefits of wireless access
on its road show. Specifically; (we're paraphrasing from NEXTLINK's recently filed S-3) “by using fixed
wireless as an alternative means for reaching customers, the company can further reduce its reliance on the
ILEC, thereby relieving its provisioning bottleneck, accelerating installation time, and increasing the
number of on-net buildings served.” As the largest holder of MMDS (38 GHz wireless) licenses in the
world, WinStar enjoys the same benefits.
· Longer term, NEXTLINK may have more wireless customers than fiber customers. During
NEXTLINK's 1Q99 conference call Steve Hooper (NEXTLINK's recently elected COO) noted that fiber
connections (while preferable) may be overtaken by wireless connections as “the predominant means of
accessing customers over the long term.” As a pure wireless CLEC play, WinStar will clearly benefit if
this vision comes to pass.
· The magnitude of the fundamental rebound is finally sinking in. During 4Q 1998 WinStar's gross
margins “collapsed” (from 25% in 3Q99 to 11% in 4Q99) reflecting a confluence of “temporary” costs
associated with the kick off of the Company's Millennium marketing program. Skeptics (who have been
waiting on the sideline for hard evidence that these costs were indeed temporary) will have their proof after the market closes today. We expect gross margins to rebound into the high teens. Our current forecast
calls for gross margins to average 35% by the fourth quarter of this year. However, management has
started to hint that 40% may be achievable.
· We have revised our data forecast for WinStar upward – but only slightly. Data still represents a tiny
fraction of our 2009 revenue forecast (less than 15%). We consider this estimate little more than a “place
marker.” As the visibility of data revenues improves over the next two quarters, we intend to raise this
estimate considerably. As a result, we would be disinclined to sell WCII shares despite the recent strength.
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