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Telecommunication stocks are among the many technology sectors that have very few friends on the Street these days, having been brutally battered in recent months. But some stocks in the group, once the darling of momentum- and growth-stock players, have found new supporters, not necessarily among the usual batch of bargain-hunters, but from some value players. One of them is Mark Boyar, who thinks several of the wounded telecoms deserve fresh attention not only from a valuation standpoint but because of improving fundamentals, as well.
Boyar, who heads Boyar Asset Management in New York, says one telecom company that's well along the recovery route is ALLTEL (AT
), which provides communications and information services to some 8 million customers in 25 states. ALLTEL, which has been busy acquiring strategic wireless assets around the country, is the fifth-largest wireless service provider in the U.S., with close to 6 million subscribers.
It focuses not only on the highly competitive New York and Los Angeles markets but on many rural areas as well, including Charlotte, N.C.; Montgomery, Ala.; and Jacksonville, Fla. "This is where a big part of the company's strength lies -- serving the underserved communities, where price competition is less severe," says Boyar.
EXCEEDING FORECASTS. "Although it has extensive wireline operations, including local-phone services, investiors should view ALLTEL as a wireless play," says Boyar. Indeed, some 60% of the company's revenues and cash flow come from its wireless operations.
Analyst Thomas J. Lee of Chase Hambrecht & Quist notes that ALLTEL is seeing higher growth and profitability in its wireless business, as revenues and cash flow should exceed analysts forecasts "continuing a recovery and turnaround" of the wireless assets that ALLTEL acquired earlier in 2000.
ALLTEL is definitely "very cheap on fundamentals and on its breakup value and cash flow," says Boyar, noting the strong percentage of its projected $7.2 billion in 2000 revenues that should come from wireless. Despite the Street's concerns over the reliabililty of income from roaming services -- fees that ALLTEL gets from other telecoms to patch their calls through its wireless network -- he thinks the company will meet its profit forecast of $2.70 a share for 2000.
MORE STABLE? Worry over declining roaming charges, says Boyar, is overblown because the fees represent only about 6% of ALLTEL's total sales in previous quarters. Furthermore, he says, ALLTEL will be benefiting from its own new national rate program, which should produce a more stable and recurring revenue stream, and also make the company less dependent on roaming fees.
One of ALLTEL's attraction, says Boyar, is in its sum-of-the-parts valuation. The company's wireless business alone, he figures, could fetch more than $70 a share, or 15 times his 2001 estimated earning before interest, taxes, depreciation, and amortization, or EBITDA. And its wireline phone operations could be worth $33 to $35 a share, he says, or about 9 to 10 times EBITDA. The other important part of the company, its information-services unit, could be worth at least $10 a share, Boyar estimates.
In total, Boyar figures the intrinsic market value of ALLTEL, whose stock is currently trading at 58 a share, comes up to $113 a share. The stock traded as high as 84 a year ago. He thinks ALLTEL could enhance shareholder value quickly by either spinning off or selling some or all of these pieces. So given that its breakup value that isn't reflected in its stock price, says Boyar, ALLTEL "would make an attractive acquisition candidate."
Copyright 2000, by The McGraw-Hill Companies Inc. All rights reserved.
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