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

To: SteveG who wrote (8055)	9/1/1998 2:36:00 PM
From: Bernard Levy	Read Replies (1) \| Respond to of 12468

Dear Steve: With respect to DCF analysis and stock price, I would like to point out that Vogel is in fact inviting the questions by saying that he has a $97 ''target price,'' instead of a $97 DCF value. Why is the market value so different from the DCF values predicted by the models of Vogel, Grubman and Governali? Here is my take. The DCF model is subject to large random fluctuations, such as P-MP timing, interest rates for junk bond financing, and the state of the economy. Vogel attempts to deal with this uncertainty by applying a very large discount factor to future cash flow. However, I think a more realistic approach would be to construct several scenarios (optimistic, pessimistic) reflecting future business conditions for Winstar. Then, the standard deviation for such scenarios (which is probably large) provides a useful metric on figuring how the market values Winstar. Specifically, I would take the values of Vogel, Grubman etc.. and reduce them by at least one standard deviation to get a reasonable stock price target. Keep in mind that as WCII executes its business plan, the uncertainty and standard deviation will go down, and ultimately the stock price will match the DCF model values. However, right now, the DCF model probably fails to properly capture the normal risk aversion of investors. Best regards, Bernard Levy