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Technology Stocks : Winstar Comm. (WCII) -- Ignore unavailable to you. Want to Upgrade?

To: Steven Bowen who wrote (8046)	9/1/1998 2:09:00 PM
From: SteveG	Read Replies (1) \| Respond to of 12468

NationsBank Montgomery ("NBMO") analyst Bill Vogel's WCII research note put out today: ========================================= CLEC shares are selling off in the face of a generally weak market and fears that CLECs will not acquire financing thus retarding the attainment of their respective business objectives and correspondingly, the value of the company. As shown below, the CLEC sell-off has sent WinStar shares 60% below its high of $47-3/8 on June 10, 1998. Other CLECs are between 26%-61% off their highs in the past 4-10 weeks. Ticker Current Price ========== Recent High =========== 8/31/98 Date Price %change WCII $18 3/4 6/10/98 $47 3/8 -60% ICGX $17 1/4 6/24/98 $44 -61% GSTX $ 9 5/16 7/17/98 $16 -42% NXLK $23 7/8 7/23/98 $40 3/4 -41% TGNT $21 7/21/98 $33 1/4 -37% ICIX $25 1/16 6/25/98 $36 3/4 -32% ITCD $34 7/30/98 $49 1/2 -31% ESPI $16 3/16 7/7/98 $23 1/32 -30% MCLD $30 1/2 6/10/98 $41 3/8 -26% Throughout this time as well as throughout the year, WinStar's momentum has been steadily building, on the back of a robust second quarter performance of 250% revenue growth year-over-year and a $0.4 million improvement in EBITDA relative to first quarter. WinStar is fully financed through EBITDA break-even, in our opinion, which we predict to be in 4Q99. WinStar may require incremental financing prior to EPS break-even in 2001 depending upon the extent of management's intensity in pursuing the completion of the network. Funding through EPS break-even should not be a problem. As shown below, we have projected WinStar's cash balance through 2002. Based on our current assumptions, we show a cash shortfall of $87 million in 2000. We believe that WinStar should have adequate access to vendor equipment financing of up to $200 million in the latter half of 1998 and 1999. We have not explicitly assumed any vendor equipment financing in our financial projections. Any such financing would readily improve WinStar's position. (following table in millions) [NOTE: I have decimal ROUNDED the numbers from Vogel's ACTUAL report for the numbers to fit on this page; I also omitted the breakout of the the four 98 quarter's numbers that Vogel provided to accomodate the fit here. Further, I am looking to have clarified a seemimg discrepancy with WCII's understood successful $650MM debt financing for in 98Q1 vs. Vogel's 98 number of $548MM (represented as $562MM in 98Q1)] 1997A 1998E 1999E 2000E 2001E 2002E Beginning cash balance 123 419 442 5 <87> 73 + Ebidta <158> <193> <97> 125 381 559 + Capital Expenditure <227> <316> <300> <175> <175> <175> + Working Capital <3> <17> <39> <42> <47> <51> + Net proceeds from financing, investing 685 548 0 0 0 0 ---------------------------------------- = end cash balance 419 442 5 <87> 73 405 No Actual Debt Repayments Until 2004 and beyond. WinStar's debt is structured so that no issue is due prior to 2004. At that time, we are forecasting cash balances in excess of $1.7 billion, more than adequate to meet a debt repayment of $250 million in that year. Debt covenants do not restrict incremental debt offerings, should they be needed. While we do not anticipate additional debt financing, WinStar has the flexibility to do so, if needed. We reiterate our BUY recommendation on WinStar shares and our price target of $97 per-share. WinStar's execution of its business plan through the second quarter combined with its leading national asset profile confirm our confidence in the firm's prospects. WinStar continues to qualify as our single best idea in the Telecommunications Services Industry. We urge investors to exploit current market conditions in order to capture these assets at today's compelling valuation levels. =========================================== Fwiw, I also wanted to clarify for those who may not be as familiar with what a DCF projection is. Some have questioned why YE98 DCF projections of ~$60 to $100 are continuing to be made, when the stock seems unlikely to reach these prices by YE98 at this point. It's been queried why these analysts don't adjust their projection numbers down to accomodate the current stock price. The answer as some may know, is that a DCF model valuation is NOT a prediction of where the stock will be. It does NOT take into account the current stock price in determining a current DCF valuation. The DCF valuation is made based on using ballpark industry values and (usually conservative) projections of customers and revenues 10 years out. Since growth (in revenues, cashflow, ebitda and earnings) for companies who are building an infrastructure (such as CLECs) is not linear, DCF models are a way to determine a fair current market value. So unless some specific variable of a DCF model changes (current stock price is NOT a variable), there is no justification for changing that model and its resultant valuation projection.