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Technology Stocks : Global Crossing - GX (formerly GBLX) -- Ignore unavailable to you. Want to Upgrade?

To: changedmyname who wrote (13074)	8/2/2001 8:47:29 PM
From: RobertSheldon	Read Replies (4) \| Respond to of 15615

Here is a summary of GX research reports from John Dessauer. As I mentioned he just initiated his position a month or so ago. I guess he qualifies as a fiddle player - interesting in that he also is a careful valuation orientated fellow. August 2, 2001 This is a time to position your portfolios to enjoy the profits that lie ahead. And yes, that includes Global Crossing (NYSE, GX, $5.68). In my opinion, the selling here has disconnected from reality. Furthermore some Wall Street analysts are following the market itself, rather than their own analysis. Take Credit Suisse First Boston, for example. I read their downgrade and it seems silly on its face. The analyst has a $14 price target for the next 12 months. That is in light of his gloomy view of the global telecommunications business. From here, that is more than a double, but he says “hold” rather than buy. I think a double in this market would be good enough to buy. Furthermore CSFB has “buy” ratings on a lot of stocks where the price target is far less than a double. The analyst also says that EBITDA was 3% above his forecast and that the loss per share was less than his estimate. The downgrade is 100% due to worries about the short-term outlook for Global Crossing’s business. Specifically, there are worries about the transition from initial construction to an ongoing service providing company, and how that will affect cash flows and worries about a “bandwidth glut” and worries about the economic slowdown. In the conference call and earnings release, the company addressed these issues. The current short-term challenges actually provide Global Crossing with a better long-term opportunity. For example, they lost some business because other carriers either went bankrupt (like 360 Networks), or had to cut back. The trouble at the competition, therefore, reduces revenues right now, but the customers of the competition are switching to Global Crossing, so the short-term challenge becomes a long-term gain. Global Crossing is also cutting back in areas where the outlook is not up to the company’s expectations. Staffing will be cut and some offices will be closed. Wall Street takes that as a big negative as well, but I take this as management responding intelligently to the reality of the business environment. Lower costs will mean improved profit margins. By the way, Wall Street has also ignored the significant increase in the sales staff. The analysts at Deutsche Bank Alex Brown make more sense to me than CFSB. They have cut their immediate price target on the stock to $15 for this year. That is simply a recognition of the battering the stock has taken. Even though the selling is grossly overdone and out of touch with reality, it usually takes time to repair the damage. But Alex Brown keeps a strong buy on the stock. They point out that Global Crossing has $2 billion in cash and a $1.7 billion line of credit. With capital spending coming down, there is therefore no cash problem at the company. Management confirmed that Global Crossing will be free cash flow positive in the second half of next year. And next year, Global Crossing will also reach break-even on U.S. GAAP accounting basis for EBITDA. I guess I can understand Wall Street’s anxiety, in the sense that Global Crossing, while fully funded, is not yet breaking even on a cash flow basis. If the world is headed for a Depression, then that would be a big problem for Global Crossing – and for a whole lot of other companies – but as long as there is reasonable growth and opportunity for business (and there is), then Global Crossing will keep growing, even faster, and cross over the cash flow breakeven point as expected. During the second quarter, Global Crossing’s revenue grew 26% over a year ago. Growth rates overall were better than any other telecommunications company. Data revenue grew by 44%. Management believes that Global Crossing will emerge from the current economic slump as the dominant leader in global telecommunications. The short-term negatives are therefore major long-term positives. Growth expectations for this year have been reduced, but to +20%- 30% for revenues. That is, in my view, outstanding in this environment. Imagine what is going to happen on the other side of this economic slump. Global Crossing is gaining market share right now. The overall market is growing. The growth numbers next year, when the economic picture improves, are likely to be astounding. Those who have sold Global Crossing are likely to have big regrets in the future. Wall Street doesn’t understand what is going on in business around the world. As never before, the winners are being separated from the losers. Because of over-capacity, the weak get weaker and the strong get stronger. You and I can make enormous profits by seeking out the winners and then buying those stocks when they are crushed, as Global Crossing is now. Business realities will eventually demonstrate beyond any doubt that Global Crossing is a winner, even though many competitors may fall by the wayside. Wall Street really doesn’t like to take risks, but taking risks is the path to wealth and financial security. Buy Global Crossing.