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

To: Bernard Levy who wrote (8057)	9/1/1998 4:13:00 PM
From: SteveG	Read Replies (4) \| Respond to of 12468

Bernard- <..that Vogel is in fact inviting the questions by saying that he has a $97 ''target price,'' instead of a $97 DCF value...> I agree that Vogel's interpretation of his DCF valuation as a "target" price can be inviting of scrutiny. It certainly could be argued that he just leave it as his DCF valuation "projection" without drawing it into the "real world" of stock prices (which includes non-fundamental based momentum - in either direction). Clearly, regardless of (though somewhere underlying) momentum there is some anchor to valuation, and I suspect his referring to it as a target "price" is the bridge to this underlying world of fundamental (versus technical) analysis. When technical analyst John Murphy says he think the market could be on it's way to 5000-4500, he is NOT saying it will go there, or that it would be fairly valued there. It is simply the prediction of his discipline (technical analysis) into the real world stock price. But just as technical analysis ignores company fundamentals and is acutely sensitive to current stock price in making its predictions, fundamental analysis similarly does NOT include technical aspects in determining it's target price. And of course, these fundamental "valuations" are not merely academic, but do have specific stock price interpretations. So whereas it may be splitting hairs to say that his "target" price is not necessarily a prediction that the stock will trade there, it DOES indicate that his discipline suggests this specific price is supported, and is therefore his "target". Again, I agree that doing so invites further scrutiny as the "real" market is neither purely technical nor fundamental (and is currently "trading" more technically) The question DOES remain however whether any of the fundamental economic or political variables (worldwide) that in part underlie the activity of the world's markets, might ALSO affect WCII/telecom DCF assumptions. A cursory look indicates to me they do not. <..Why is the market value so different from the DCF values predicted by the models of Vogel, Grubman and Governali?..> A bigger subject than I have time for exploring right now, but Governali and Grubman are in fact close. Grubman and Governali use a larger # of shares outstanding (fully diluted) in their projections. Vogel computes DCF market caps using the justified number of diluted shares for that year. He also uses some other higher assumptions as well, but uses a larger discount number to compensate. As you know, NONE of the analysts however uses HBW data revenues/line numbers, so ALL of the models are very conservative - almost to the point of inaccuracy. Rouhana seems OK in leaving this for the time being as "upside". Your idea to build several models which account for, and perhaps measure the sigma around, the assumptive biases seems doable but may not be what the street wants. They have enough trouble understanding 'bandwidth' than having to determine which set of assumptions they should use in determining a DCF value. I think that when DCF assumptions DO clearly change, these are reflected in updated models. And you are correct that our confidance intervals increase as the assumptive sigmas are reduced. BTW, here is a DJ article from earlier today (that Vogel pre-emptively addressed regarding WCIIin his report). Apologies if this is a duped post of the DJ article - I started this response awhile ago and couldn't finish it until now. ================ =Bells Could Thrive While CLECs Flounder In Volatile Mkt NEW YORK (Dow Jones)--Volatile market conditions threaten to deeply divide the stock performance in the local telephone sector, making the Baby Bells among the overall market's strongest performers and the smaller carriers among the weakest. During the recent period of sharp market losses, the Baby Bells and GTE Corp. (GTE) have outperformed the broader market. Investors consider these companies attractive because they derive 90% or more of their revenue within the U.S., offer a relatively high dividend and have a steady stream of earnings growth. "If the market is being pulled down by earnings fear, these stocks tend to perform better and are less economically sensitive than your average large-cap stock," said PaineWebber Inc. Eric Strumingher. Although the five Bells and GTE were all down slightly Tuesday, Strumingher said that was not surprising, given that they had so outperformed the broader market recently. BellSouth Corp. (BLS), for example, rose to 68 9/16 Monday from 65 13/16 Wednesday, a day before the market took a big hit. It recently was at 65 5/8, down 2 15/16, or 4.3%, for the day. And SBC Communications Inc. (SBC), which had traded at 40 5/16 Wednesday, zig-zagged to 38 1/2 the following day, 39 5/8 Friday and 38 1/16 Monday. It was recently down 1/4, or 0.7%, at 37 13/16. Meanwhile, market observers expect the dozen or so competitive local exchange carriers to suffer as long as the current volatility continues. These would include previously high-flying stocks like Intermedia Communications Inc. (ICIX), Winstar Communications Inc. (WCII), and ICG Communications Inc. (ICGX). Intermedia, for example, has fallen to 22 3/8 Tuesday from 29 1/8 Wednesday, while Winstar has dropped to 18 7/8 from 26 13/16. Many of these start-up telecommunication concerns have recently gone public and are big borrowers in the high-yield bond market, making them heavily reliant on robust equity and debt markets to finance their growth. "And if we don't get those strong markets," Strumingher said, "they don't get their growth." ================================ Steve