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Technology Stocks : Broadband Wireless Access [WCII, NXLK, WCOM, satellite..] -- Ignore unavailable to you. Want to Upgrade?

To: SteveG who wrote (254)	5/27/1999 10:14:00 AM
From: SteveG	Respond to of 1860

WCII: More Data Revenue + More On-Net Traffic = New Price Objective Bankers Trust Research/BT Alex. Brown Research Bo Fifer, Jeffrey Hines May 26, 1999 ---------------------------------------------------------------------- WINSTAR COMMUNICATIONS INC. [WCII] "STRONG BUY" More Data Revenue + More On-Net Traffic = New Price Objective ---------------------------------------------------------------------- Date: 05/26/1999 EPS 1998A 1999E 2000E Price: 47.0 1Q (2.51) (3.72)A (3.48) 52-Wk Range: 56 - 10 2Q (2.77) (3.89) (3.33) Ann Dividend: 0.0 3Q (2.83) (3.64) (2.96) Ann Div Yld: 0.00% 4Q (3.80) (3.46) (2.66) Mkt Cap (mm): 3,558 FY(Dec.) (11.89) (14.70) (12.42) 3-Yr Growth: FY P/EPS NM NM NM CY EPS (11.89) (14.70) (12.42) Est. Changed Yes CY P/EPS NM NM NM --------------------------------------------------------------------------- ---- HIGHLIGHTS: --WinStar announced a $40 million, 3-year extension to an existing contract for backbone services with AboveNet Communications this morning (27-May). We are raising our 12-month price objective to $67 from $64 based on the following incremental news: --BACKBONE/DATA FORCE: While this morning's announcement adds relatively little value in and of itself to the WinStar story (approximately $34 million of incremental EBITDA over a three year period beginning 2001), we took two very important strategic points away from the announcement: 1) It's good to own your own long-haul network. Recall that WinStar "bought" a long distance network from Williams in December 1998, which decoupled WinStar's networks costs from network volume since the company no longer had to lease lines. As a result, the margin on this AboveNet contract (and all others that follow) is estimated to be approximately 85%. 2) The future is data. Or it could very well be, and our models are admittedly conservative in our data forecasts. WinStar, in addition to its high-margin, broadband local loop services, has now demonstrated its capacity to provide fully integrated communications services. We have NOT yet made systemic changes to our data revenue forecast for WinStar, rather simply added incremental revenue for this contract. --MORE ON-NET TRAFFIC: WinStar recently raised its internal long-term projections for on-net traffic to 90% from 65-70%. We have always been a bit more aggressive on this front, although we are raising our estimates regarding the percent of lines on-net to 80% from about 75%. The resulting improvement in margins leads us to our new price objective. --NET-NET: This morning's announcement casts a whole new light on the deal WinStar struck with Williams for long-haul capacity, without which we don't believe WinStar would ever have gone after this contract. Such deals are "fair game" for WinStar now, and we would expect to see an increasing number of similar deals moving forward. Our new 12-month price objective, based on our 10-year DCF, is $67/share. Maintain "Strong Buy" investment rating on the shares.