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Technology Stocks : Covad Communications - COVD -- Ignore unavailable to you. Want to Upgrade?

To: Mark Duper who wrote (148)	6/30/1999 9:45:00 PM
From: William F. Wager, Jr.	Respond to of 10485

Up on news...WSJ Interactive edition-------> Covad Communications Gains On Good News for DSL Firms By LISA BRANSTEN THE WALL STREET JOURNAL INTERACTIVE EDITION SAN FRANCISCO -- A positive sign from the Federal Communications Commission and bullish comments from an analyst at Morgan Stanley Dean Witter helped send shares of Covad Communications Group sharply higher Wednesday. On the Nasdaq Stock Market, shares of the Santa Clara, Calif., company surged 11 15/16, or 29%, to 53 5/16. The Nasdaq Composite Index rose 44.30 to 2686.41 and Morgan Stanley's high-tech 35 index advanced 22.73 to 1159.28. The Dow Jones Internet Index gained 11.76 to 247.29. On Tuesday the FCC put out a set of proposed conditions for approving SBC's merger with Ameritech. Among the conditions are a requirement that a merged entity offer lower rates for data services that want to use Ameritech and SBC wires to get their services to the homes of consumers. Covad primarily is a wholesaler of digital-subscriber lines, which let users connect to the Internet over ordinary phone lines at speeds as much as 50 times faster than conventional modems. To get its services into consumers' homes, Covad has to lease lines owned by local telephone companies that have wires in most of the nation's homes and businesses. The FCC proposals could be a boon for the whole DSL industry and other carriers rose on the news, although Covad also benefited from bullish comments from Morgan Stanley and news that Internet service provider MindSpring Enterprises had agreed to offer Covad's DSL service to subscribers in California and Texas. Among other DSL providers, Northpoint Communications Group added 2 to 36 1/2 and Rhythms NetConnections rose 8 1/8 at 58 3/8. Both trade on Nasdaq. Brent Bracelin, an analyst at Pacific Crest Securities, said the fact that the FCC may require SBC and Ameritech to charge discounted fees for access to their lines is very good news for Covad and other DSL providers. The condition could take prices Covad and others pay well below the average of $22 a month they now pay to the Baby Bells for access to consumers. Another positive for the DSL companies, he said, is the possibility that the FCC might include a similar provision as a condition for the approval of the Bell Atlantic merger with GTE, which is also pending FCC approval. Mr. Bracelin said he expects Covad's shares to be volatile for some time as the market figures out exactly how to value the company. The huge potential for DSL service providers justifies the company's high valuation, he said, even though the company has huge losses. Last year, the company had a loss of $48.1 million on revenue of $5.3 million. Shares of Covad are well off the 52-week high of 81 they hit on April 12, but the peer group of high-speed access providers as a whole is off about 42%, Mr. Bracelin said. He has Covad shares rated a "buy" and forecasts the shares could hit 100 over the next 12 months. Ken Hoexter, an analyst from Goldman Sachs, said news from the FCC may be causing investors to factor in a takeover premium into the share price. Another condition proposed by the FCC was that the companies create a separate affiliate to provide advanced services such as DSL access in SBC-Ameritech markets. That, Mr. Hoexter said, increases the likelihood that SBC-Ameritech might buy a DSL provider such as Covad to quickly enter the market. Also helping Covad in particular was the report "Fat Pipes, Fat Returns" put out by Peter Kennedy, an analyst at Morgan Stanley, who initiated coverage of the company Wednesday with an "outperform" rating and a price target of 60. Mr. Kennedy said he believes the DSL market opportunity could get as big as $7 billion to $8 billion by the end of 2002 from less than $400 million this year. He added: "Covad's premiere management team [and] first mover advantage, in our view will allow the company to take a disproportionate share of this market." He warned, however, that he believes a good part of Covad's valuation is based on investors' belief that the company will successfully add other products such as voice or content services to its DSL service. --Bill