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Technology Stocks : PSIX up 26.5%, Takeover(?) -- Ignore unavailable to you. Want to Upgrade?

To: lupaka who wrote (5005)	9/14/2000 7:31:55 PM
From: lupaka	Read Replies (1) \| Respond to of 5650

Kaufman Bros Reiterates P6 as strong buy - $84 (With thanx to eye_pasta on Yahoo) PSIX is hosting an analyst conference and investor webcast this Friday to discuss its recent results, financial model, and strategic outlook. We anticipate that the company™s shares will perform favorably during the next several days, chiefly because investors will finally get guidance for the company™s combined Metamor/iecorelJ PSIX/TNS operations in terms of revenues, revenue mix, and EBITDA (among other things) for 2H00/2001. In addition, we believe the company will outline certain capital markets initiatives, including plans to spin off its retail operations, Inter.net, and monetize portions of its $1 billion venture portfolio, in 1H01. We estimate that Inter.net accounts for 40% of PSIX™s EBITDA drag and could represent unrealized value of $300-500 million. In particular, we look forward to the company™s new CFO, Larry Hyatt, giving the Street insight into PSIX™s data center strategy, which calls for the development of one million square feet of global, modular, expandable, sellable rack space in two dozen facilities geared for the high end of the Web hosting market (i.e., managed services a la Digex - DIGX $64, which should soon be controlled by WorldCom - WCOM $30 3/8, STRONG BUY; when WCOM completes its planned purchase of Intermedia ICIX $29 1/16 for $6 billion). We estimate that the development of several of these facilities during the past year has adversely impacted PSIX™s operating performance due to the front-loaded costs of the data center construction business (it takes several months to design and build a center and one year or more to fully load it). We anticipate that the company™s most mature facilities are now nearing full capacity, poised to be expanded to meet robust demand from new and existing customers, and positioned to favorably impact results going into the New Year. We note that this portion of PSIX™s business should result in very high EBITDA margins north of 60% when mature and throw off incremental bandwidth revenues for the company™s transport business (note that Qwest - Q $47 5/8 and Level 3 - LVLT $77 7/8, HOLD; now generate four to five dollars of bandwidth-related revenue for every dollar of hosting revenue and have indicated that this ratio could top 10:1 within the next few years). It is our firm belief that PSIX has assembled an industry leading bundle of Web design, integration, hosting, management, bandwidth, transport, and e-commerce services that positions the company to capture a significant portion of the high end hosting market, which is experiencing exponential growth and could represent total revenues north of $20 billion within a few years if current trajectories remain intact. In our view, the marriage of Metamor/Expedior (XPDR $4 7/8) to PSIX has been misunderstood by investors. We anticipate that the addition of a global design/integration vehicle with a focus on complex Web solutions to PSIX™s significant installed business-focused customer base of over 100,000 will result in significant revenue synergies. We believe the company™s business portfolio has resulted in a highly defensible position at the high end of the Internet marketplace that few other providers can match on an in-house basis. We note that in preannouncing flat/down results in 3Q00, Xpedior, the Web solutions unit of Metamor now majority-owned by PSIX, indicated that it is experiencing a transition period during which contract terms are lengthening as more customers demand increasingly complex Web sites/solutions that require considerable man-hours to design/deploy. We believe this trend bodes well for PSIX™s future results. Specifically, we think it is a leading indicator for an improving revenue mix and growth in the company™s complex Web solutions/services business, which carries higher margins and a higher valuation on Wall Street. Since PSIX is focusing growth on the high end of the Internet solutions marketplace, we anticipate significantly positive guidance from management for this line item tomorrow that could help define the company as the leading managed services provider in the sector. For example, we predict that PSIX™s annualized new contract value, which stood at $240,000 in 2Q00 (comparable to sector bellwether Exodus Communications - EXDS $61 ¼), will expand considerably over the coming months as the company cross-sells an array of services geared towards the front-end and the back- end of sites soup-to-nuts - and serves a greater portion of its customers™ complex Web needs. For several weeks, in the face of numerous downgrades (which we view as highly reactionary), we have held that PSIX shares are poised to make a major move if and when management stepped up and gave investors information on the company™s pro forma financial model. We believe that time has finally arrived. We recommend investors stop looking in their rearview mirror when examining PSIX and build significant positions in the name in anticipation of a banner 2001, during which management™s vision of an integrated end-to-end Internet supercarrier should be validated and the company should put muscle onto the frame and move through a period of accelerating improvements in revenue mix and cash flow. Against this backdrop, we reiterate our STRONG BUY recommendation.