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Technology Stocks : WCOM -- Ignore unavailable to you. Want to Upgrade?

To: Time Traveler who wrote (4169)	4/12/1999 10:26:00 AM
From: Maven	Respond to of 11568

To: All Not everyone thinks acquisition of Nextel is such a bad deal. - - - - - - - - - - - - - - - - - - - - - Stock of the Day Apr 12, 1999 MCI Worldcom: Life After Nextel Analyst: Chris Bulkey 4/12/99 Shares of MCI Worldcom (NASDAQ:WCOM - news) have been under a bit of pressure recently over rumors that the company is going to acquire Nextel Communications (NASDAQ:NXTL - news) in an effort to fill in the only void in its product line--a nationwide wireless network. The high-flying stock has slipped back to around $88 from its high of $94.25. Investors are concerned that such a deal would result in double-digit arnings dilution in the first year. But, that would only be true if the deal involves purchase accounting. Therefore, most pros believe that a combination would occur only through a merger that would permit pooling of interests accounting. This way MCI Worldcom could avoid goodwill and use Nextel's deferred tax assets (NOLs). Besides, dilution hasn't hurt the company in the past. This is because tow dilutive deals it can completed in the past enable the company to enter into two high growth areas. The first such deal came with the acquisition of MFS Communications, which was seen as a defining deal for the company because it gave MCI Worldcom a presence in domestic and international local markets. The acquisition of UUNET rounded out its end-to-end connectivity platform by bringing Internet services into the product mix. And thanks in large part to these acquisitions, the company was still able to rack up AFGC results in the fourth quarter of 1998 despite the fact that full-year revenue came in at $17.7 billion. In the fourth quarter revenue quadrupled to $8 billion while earnings increased 130% to $0.23 per share. Of course, this is more of a technicality since WorldCom completed its $47 billion purchase of MCI in September. In any case, CEO Bernard Ebbers credits the strong results to one simple factor: focusing on what the company does best--provide core communications services. Over the past year MCI Worldcom has shed all non-communications services businesses, and is now poised to expand its Internet, data and local and long distance services in both the domestic and international markets. The investment thesis for MCI Worldcom is not necessarily based on fourth quarter earnings. Rather, the expansion of both product offerings and geographic scope has set the stage for explosive earnings growth over the coming years. Consensus estimates currently call for the company to earn $1.96 per share this year and $2.83 in 2000, a 44% jump. The biggest potential source of future growth lies overseas. The company has established footholds in a number of markets that are deregulating and under-penetrated. Over the past year the company has made an investment in Embratel, Brazil's only national communications provider, and completed a joint venture with Mexican telecommunications provider Avantel. These deals give the company a foothold in fast-growing markets where data and Internet services are still in nascent growth stages. Consider that MCI Worldcom controls only 4% of the global market, and it is easy to see the tremendous growth opportunities that lie ahead. Meanwhile, the temporary weakness in MCI Worldcom shares provides a good buying opportunity. A conservative 12-18 month price target is $113 based on 40 times the 2000 consensus estimate of $2.83 per share. Bottom Line: The company's international expansion will raise the profile of the MCI Worldcom franchise, which should lead to P/E multiple expansion. Couple that with at least 40% earnings growth, and you a have a solid long-term core equity holding.