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Technology Stocks : RCN Corp. (RCNC) - Voice-Video-Internet -- Ignore unavailable to you. Want to Upgrade?

To: Sarkie who wrote (671)	10/30/2000 11:43:10 AM
From: SecularBull	Read Replies (2) \| Respond to of 720

SSB's Grubman (10/24): "RCN Corp.: RCNC, 1S, Price Target $50 RCN continues to improve its operations by addressing its customer service issues and continuing to roll out its Resilink bundled product. We believe that RCNC made the right move earlier this year by holding back from marketing to customers until they improved their back office and as they refined their true bundled product offering versus selling voice, video and data services on an à la carte basis with discounts offered as a customer signed up for an additional service type. This was made possible with Paul Allen’s $1.65 billion investment, which provided the funding to 5 million homes passed, allowing RCNC to take the financing issues off the table. During the second quarter, RCNC reported improved customer service metrics and continued momentum in its Resilink bundled product and we believe third quarter results will not disappoint. We are estimating revenues of $102.8 million in third quarter, with EBITDA losses of $87.2 million and we estimate that RCNC will end the quarter with 1,250,000 homes passed and 400,000 advanced fiber (on-net) connections. Thus, with expectations of continued improvements and little near-term financing risks, we remain bullish on RCNC and reiterate our Buy rating. We are reducing our price target to $50 from $80 per share as a measure of realism and conservatism in light of current market conditions. Our DCF-driven price target changed due to various changes made to our model including a reduction of our discount rate from 14.0% to 13.8% with puts and takes in terms of the beta, risk premium, and cost of debt and a reduction of our terminal FV/EBITDA from 12x to 9x. Our new DCF model implies a FCF (free cash flow) growth rate in perpetuity of 10.5%. In addition, we have made more conservative assumptions in the beginning of 2001 with regard to connections in service across each product. In 2001, we have assumed that more of RCNC’s dial-up Internet customers, who are primarily not on their advanced fiber network, churn such that off-net data customers are 320,000 versus our previous 375,000 estimate. As a result of dial-up customer churn and a more conservative view of RCNC’s commercial and other revenues, we brought our 2001 revenue estimate to $573 million from $596 million and our EBITDA losses estimate is roughly unchanged at $241 million due to an improvement in gross margin. In 2009, we brought voice connections in service down from 5.4 million to 4.7 million, cable subscribers down from 5.5 million to 5.1 million, and data customers from 5.4 million to 4.6 million with off-net customers going from 200,000 to zero. We did not make any changes to our capital expenditures assumptions, which are above the historical range for the incumbents of 15%–20% as a percentage of revenue although since we are bringing down our 2009 revenues, the capital expenditures as a percentage of revenues increases. As a result of the lower connection assumptions as well as minor adjustments to the ARPUs for these services, our 2009 revenues estimate declines from $9.4 billion to $8.5 billion. In addition, we reduced our EBITDA margin for the out years from 42.5% to 40.5%."