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Technology Stocks : Covad Communications - COVD -- Ignore unavailable to you. Want to Upgrade?

To: BIGFRED who wrote (105)	4/21/1999 10:56:00 AM
From: SteveG	Read Replies (1) \| Respond to of 10485

THE NET-CENTRIC SERVICE PROVIDERS (NSP) BI-WEEKLY... Bankers Trust Research/BT Alex. Brown Research Kevin Moore,Michael Bowen April 21, 1999 --------------------------------------------------------------------------- ---- COVAD COMMUNICATIONS GROUP INC. [COVD] "BUY" E.SPIRE COMMUNICATIONS, INC. [ESPI] "BUY" EQUANT N.V. [ENT] "BUY" EXODUS COMMUNICATIONS, INC. [EXDS] "BUY" INTERMEDIA COMMUNICATIONS INC. [ICIX] "BUY" ONEMAIN.COM INC. [ONEM] "BUY" MCI WORLDCOM, INC. [WCOM] "STRONG BUY" The Net-Centric Services Providers (NSP) Bi-Weekly--An Update On Services Providers Focused On Data Communications & The Internet. --------------------------------------------------------------------------- ---- 52-WK Earnings Per Share FY Price Price 3-5 Yr Est. Ticker End 04/20/1999 Range 1998 1999 2000 Growth Chg? COVD 12 80.06 122-31 (8.43)A (3.38) (3.52) 100% N ESPI 12 13.13 23-4 (4.45)A (5.29) (4.49) 58% N ENT 12 81.75 96-33 0.08A 0.35 0.51 62% N EXDS 12 74.00 98-8 (1.81)A (1.95) (0.74) 71% N ICIX 12 29.25 45-13 (10.57)A (10.82) (10.48) 53% N ONEM 12 26.75 47-25 (3.81) (4.50) (4.79) 39% N WCOM 12 84.88 94-39 0.67A 1.97 2.81 30% N --------------------------------------------------------------------------- ---- HIGHLIGHTS: - The NSP sector was subject to some sector rotation during the last two week period. Our net-centric coverage group was down 1.7% collectively, and the S&P 500 was down 0.9%. - We propose focusing investors on the companies providing the Internet service infrastructure and enhanced access services to the Internet. These include OneMain.com, Covad Communications and Exodus Communications. - Highlighting the sector this period is our initiation of coverage of OneMain.com with a "Buy" investment rating and 4Q 1999 price target range of $46-$50. It currently trades at a 40% discount to its peer group as an enterprise value multiple to subscribers. - Reiterate our investment thesis to overweight the net centric services providers, which we continue to believe should present investors with one of the largest opportunities in the telecommunications sector. DETAILS: SECTOR COMMENTARY Sector Performance: just when everyone thought it was safe to "pile on" in the Internet and NSP sector, the most dreaded two word combination came to fruition--sector rotation. Our net-centric coverage group was down 1.7% collectively, as was the S&P 500 down 0.9%. However, more indicative of what really occurred is the 12.2% loss in the AMEX Interactive Week index during the two-week period. It began with a sell-off in technology stocks and it is understandable why investors have been scared off by the entire sector given that two of the highest profile segments of the tech sector-- personal computers and semiconductors--are both coping with declining PC prices and fears over slowing demand. However, we contend that investors may be missing a subtlety in this cause and effect scenario. Semiconductors and PCs are analogous to a scenario where if demand for cars, or any transportation medium for that matter, were to decline, it would not decrease the need for people to move around. Simply put, we believe that while semis and demand for certain companies' PCs may decline, overall Internet usage should not abate. Therefore, we encourage investors to focus on companies that provide Internet related services or improved access to the Internet. In other words, while demand will ebb and flow for products with which to use the Web, we propose focusing on companies providing the Internet service infrastructure and enhanced access to the Internet. These include OneMain.com, Covad Communications and Exodus Communications. Highlighting the sector this period is our initiation of coverage of OneMain.com with a "Buy" investment rating and 4Q 1999 price target range of $46-$50. The Company is a top 10 ISP based on its number of subscribers and provides Internet access across the U.S. predominantly to individuals located in secondary and rural markets. The secondary and rural city ISP market is attractive and is growing at 40+% and is expected to approach $20B by 2001. The sector is ripe for consolidation with nearly 5,000 independent ISPs that have well positioned "one-off" franchises but lack the scope and scale that could be achieved via horizontal mergers in the sector. Given the above discussion, we believe OneMain.com is particularly attractive given it trades at a 40% discount to its peer group as an enterprise value multiple to subscribers. We believe this may offer investors a window of opportunity through which to invest in the shares of the Company that have been unduly punished relative to its peer group. We reiterate our investment thesis to overweight the net centric services providers, which we continue to believe should present investors with one of the largest opportunities in the telecommunications sector. RECENT EVENTS AboveNet (ABOV - "NR") - signed agreement to collocate DoubleClick's Web servers at AboveNet's Internet Service exchanges and operate DoubleClick's server computers linking the advertising firm to the Net and manage traffic on its network. AboveNet has peering agreements with more than 210 ISP networks (4/12). Concentric (CNCX - "NR") - 1Q results of $30.1M revenue, an 82% increase from the year ago quarter and 20% increase sequentially (4/20). Introduced telecommute service using DSL to medium/large businesses, pricing starts at less than $100/mo. based on volume and term (4/12). Covad (COVD - "Buy") - announced consumer xDSL service at 384 of 768Kb per second. Service to be sold to ISPs from $39-$59 with ISPs typically adding $10-$30 per month. Average of 65% of all households in its markets will be able to access TeleSurfer (4/20). Earthlink (ELNK - "NR") - announced OEM partnership with Microworkz.com Computer to offer one free year of Internet access to purchasers of $299- $699 WEBzter PCs. EarthLink will be exclusive default ISP on WEBzters, of which more than 100,000 are expected to ship (4/19). Added 155K subs in 1Q, totaling 1.155M (4/14). e.spire (ESPI - "Buy") - to provide Hyperion with fiber in 14 MSAs in exchange for fiber-optic cable in south Florida. Network Technologies to also provide Hyperion with network construction and services worth $30M over the next four years (4/15). Exodus Communications (EXDS - "Buy") - extending its partnering program to Japan, enabling Japanese clients to place servers in the U.S and Europe (4/15). To offer hosting services in U.K. by end of 2Q 1999 (4/12). Mindspring (MSPG - "NR") - completed offerings of 2.76M common shares and $180M of 5% convertible subordinated note due 2006 (4/14). Turns up heat on cable operators, urging Congress to force access (4/14). MCI WorldCom (WCOM - "Strong Buy") - announced opening of San Jose, CA data center to offer businesses collocation and complex hosting services using UUNet's network. To offer local and geographically distributed load balancing options (4/19). OneMain.com (ONEM - "Buy") - initiated research coverage with a "buy" investment rating on the shares and a 4Q 1999 price target range of $46-$50 (enterprise value of 12.6x-13.7x our 4Q 1999 annualized revenue estimate) and supported by company comparable analysis and DCF analysis. OneMain.com is one of the Nation's top 10 ISPs with over 350,000 subscribers and currently trading at a 29% discount to its peer group (4/20). Qwest Communications (QWST - "NR") - announced strategic relationship with BellSouth in which BellSouth bought 10% of Qwest for $3.5B, or $94.84 per share. Comprised of a joint marketing agreement that covers period prior to BLS being allowed to provide interLATA voice/data services. Following long distance entry, companies to jointly develop and market comprehensive services (under favorable reciprocal pricing arrangements). Approximately half the shares will be newly issued and half will come from Qwest's largest shareholder, Anschutz Company (4/19). Rhythms (RTHM - "NR") - priced $325M in senior notes yielding 12.75% (4/19). Qwest signed a multiyear agreement for DSL connectivity in 31 metropolitan markets through a $15 million investment in Rhythms (4/8). Verio (VRIO - "NR") - and Xedia to jointly offer high-speed Internet access management services to businesses. New service provides DS3 rate connectivity (4/13). REGULATORY EVENTS Replies are due on 4/25 to the FCC on its notice of proposed rulemaking on the jurisdiction of dial-up calls to ISPs. FCC's deadline for carriers to file plans with states for implementing intraLATA toll dialing parity. States have until 6/22 to approve plans that carriers filed by the 4/22 deadline. UPCOMING EVENTS BT Alex. Brown Media Communications Conference - 6/7/1999. VALUATION We are reiterating our investment ratings and price targets as follows: COVD - "buy" investment rating on the shares and a 4Q 1999 estimated price target of $60 (enterprise value of 17.9x our 2000 revenue estimate and DCF analysis), ICIX - "buy" investment rating on the shares and a 4Q 1999 estimated price target range of $30 (enterprise value of approximately 3.7x our 1999 revenue estimate of $908 million), ENT - "buy" investment rating on the shares and a 4Q 1999 price target of $84 (enterprise value multiple of 13.1x 2000 estimated revenue and DCF analysis), ESPI - "buy" investment rating on the shares and a 4Q 1999 price target of $30 (enterprise value multiple of 4.4x forward net PP&E), EXDS - "buy" investment rating on the shares and a 4Q 1999 price target of $50 (enterprise value of 17.3x our 1999 revenue estimate), WCOM - "strong buy" investment rating on the shares and a 3Q 1999 estimated price target of $95 (33.8x our 2000 EPS estimate of $2.81). DUE TO REPORT Ticker Report Date EPS Est. Time (EST) Phone ABOV TBD NA TBD TBD COVD TBD ($0.79) 4:30pm 212-896-6084 ESPI 1ST Week May ($1.32) TBD TBD ENT NA NA NA NA EXDS 4/21 ($0.57) 2:00pm 415-537-1808 ICIX 4/28 ($2.56) 8:30am 888-937-3934 MSPG 4/28 NA 9:00am 913-981-5510 ONEM 4/28--CC 4/29 ($0.89) TBD TBD QWST 4/28 NA 10:00am 888-827-5150 RTHM TBD NA TBD TBD VRIO Last Week April NA TBD TBD WCOM 4/29 $0.32 TBD TBD