Net-Based Phone Cos ITXC, IBasis Up, Various Factors Seen
By Dinah Wisenberg Brin
Of DOW JONES NEWSWIRES
PHILADELPHIA -- Internet-based telephone service carriers ITXC Corp. (ITXC) and IBasis Inc. (IBAS) saw their shares continue to climb Wednesday, citing various factors the companies see as favorable for either the individual businesses or the sector in general.
Shares of ITXC, Princeton, N.J., rose as much as 17.5% after CIBC World Markets Corp. analyst Tim Horan issued a favorable research note in which he called the stock undervalued and reiterated his strong-buy rating.
On Tuesday, ITXC reported that phone traffic to Mexico routed over its global, Internet-based telecommunications network increased 27% from the seven-day period of Nov. 10 to 16 to the period of Nov. 17 to 23, after Mexico changed the country's dialing plan to conform to international standards and increase the amount of available phone numbers.
ITXC Chief Executive Tom Evslin cited the Mexico news and Horan's report, and noted that Lehman Brothers resumed coverage two weeks ago. In addition, he said, the company is making progress toward meetings its goal of reaching positive earnings before interest, taxes, depreciation and amortization in the first quarter of 2002.
"I think all of these things accumulate, and then the stock starts to move and then people say, 'Oops, I'd better hop on the train,' " Evslin told Dow Jones Newswires.
Evslin also said he and the company's chief financial officer were visiting fund managers Wednesday and have been doing so for the past month, following a year in which they didn't make the trips because managers weren't in a buying mood.
ITXC shares traded recently at $7.35, up 55 cents, or 8%, on volume of 1.8 million, compared with average daily volume of 219,600 shares. The stock was up 36% from the Friday close of $5.41.
IBasis, Burlington, Mass., up nearly 17%, or 18 cents, to $1.25, on volume of 2.55 million, compared with average daily volume of 534,900 shares, recently announced deals in Europe and South America, director of investor relations John Quirk noted.
In addition, he said, Nasdaq numbers released Wednesday show that the amount of IBasis shares sold short dropped sharply, from more than 2.3 million shares on Oct. 15 to 411,440 on Nov. 15. A high short interest means more investors expect a downturn.
The new statistics indicate that short-sellers, those who expect a stock to drop, have been covering their positions by buying shares over the past month, and that information has bullish implications as it hits the markets, Quirk said.
Quirk saw broader factors at work as well.
"The sector has been undervalued for quite a period of time," he said. "People are starting to see the light with respect to Internet telephone," versus traditional circuit-switching technology, he said.
Kaufman Brothers analyst Vik Grover agreed, citing global telecommunications deregulation, a shift from circuit to Internet telephony, firming prices and thinning telecommunications competition as market drivers for ITXC, which he rates a buy, and IBasis, which he rates at accumulate.
About 5% to 7% of all international calls are now routed through the Internet; the percentage should increase to the 25% range by 2006, CIBC analyst Horan said in his research note.
Deregulation and increased competition globally should boost ITXC and IBasis, Kaufman Brothers analyst Grover said.
Emerging-telecommunications stocks rose after China announced plans Monday to split China Telecommunications Group, or China Telecom, into two regional entities, he noted.
That change, coupled with the World Trade Organization's recent decision to admit China, paves the way for investment in the Chinese telecommunications market, where ITXC and IBasis have relationships with the phone-service providers. In addition, Grover said, China has increased its investment in Internet-based telephony.
Prices should decrease in the Chinese market, while phone usage for calls going into and out of the country should rise, benefiting ITXC and IBasis, the analyst predicted.
"There should be unprecedented growth in voice over (Internet) minutes of use, which should benefit IBasis and ITXC disproportionately relative to the rest of the field," Grover said.
ITXC and IBasis provide wholesale, Internet-based infrastructure to major retail long-distance phone carriers. People using the phone generally don't know what type of technology, Internet-based or circuit-switching, their phone companies use.
A 1998 WTO accord is increasing competition as telecommunications markets worldwide deregulate, Grover said. That helps ITXC and IBasis, as does the increasing shift toward Internet-based telephony, which requires less space, energy and equipment than circuit technology, he said.
ITXC and IBasis also may be benefiting from firmer phone-service pricing, he said.
"We hear across the board that voice pricing is firming due to a thinning of the playing field out there," Grover said.
The firmer pricing applies to both the wholesale and retail level, Grover said. Both companies, the two wholesale pure plays in Internet telephony, should see revenue accelerate next year because of these various market forces, he said.
Horan said in the note he believes there is upside to his $10 a share 12-month price target for ITXC. "We believe the company has a unique strategy and service proposition that gives it a long-term competitive advantage," the note said.
Web sites: www.itxc.com, www.ibasis.net. |
