CS "Underperform," $4 PT for PCS: from Jason on Yahoo mb
While the headline that everyone seemed to glean from today's CS initiation was "Underperform -- $4 PT", and the report is generally pessimistic, there are some positive quotes. I'm just reading through it now; thought I'd share.
"Intrinsic Value Thesis Not Relevant Yet; Things Get Better Before they get Worse -- We don't think our thesis is investable now, because most of the price and margin pressure kicks in after 2010. We expect relatively robust revenue growth coupled with margin expansion to drive robust EBITDA and FCF growth in 2010."
"M&A Provides Floor -- We see a number of potential acquirers for PCS; however, management seems less intent on selling the company."
"Risk of Relief Rally -- Given recent performance PCS could see a significant relief rally if results show any sign of sequential improvement. In addition, we are entering into PCS' seasonally strong 4Q (to be followed by a seasonally strong 1Q), so commentary on trends on earnings could be optimistic, boosting shares further."
and this was added by bricktop:
CS designed an Armageddon "worst-case scenario" model that assumes the worst on all fronts. But, then adds numerous caveats essentially saying "we are sand bagging the hell out of PCS"
Pay particular attention to the disclosure appendix!
"Credit Suisse expects to receive or intends to seek investment banking related compensation from the subject company (LEAP, PCS) within the next 3 months."
Risks
Risks to our Forecast
Upside: The most significant risk to our forecast is that the company manages to maintain
more stable ARPU. (We forecast a $6 decline.) The company has managed to grow ARPU
in the past, despite competitive pressures. In the Prepaid Valuation Primer we show that
our expected ARPU decline wipes out $10 of equity value. If ARPU remains constant, our
estimate for the value of the business would increase to $8 (14% above current price).
Downside: We have assumed that management is able to reduce fixed costs and capex
significantly as pressure on margins mount.Risks to our Thesis
Market looks through pricing announcements: The greatest upside risk we see is that
the market overlooks further pricing announcements and bids up the shares on the heels
of improved 3Q09 results. Given recent performance, PCS could significantly outperform
the group.
M&A: We are assuming only modest upside in the event of M&A based on our estimate
for cost synergies. However, strategic buyers could be willing to ay substantially more
based on the strategic value of the asset. In addition, if this were a competitive bidding
process the value could rise significantly above fair value.
Timing and Volatility: PCS has been under considerable pressure recently, and the stock
has been volatile generally. If near-term results prove better than expected, the stock
could see substantial upside before our thesis comes to bear.
Disclosure Appendix
Important Global Disclosures
The analyst(s) responsible for preparing this research report received compensation that is based upon various factors including Credit Suisse's total
revenues, a portion of which are generated by Credit Suisse's investment banking activities.
The subject company (LEAP, PCS) currently is, or was during the 12-month period preceding the date of distribution of this report, a client of Credit
Suisse.
Credit Suisse provided investment banking services to the subject company (LEAP, PCS) within the past 12 months.
Credit Suisse expects to receive or intends to seek investment banking related compensation from the subject company (LEAP, PCS) within the next
3 months.
As of the date of this report, Credit Suisse Securities (USA) LLC makes a market in the securities of the subject company (LEAP).
The author(s) of this report maintains a CS Model Portfolio that he/she regularly adjusts. The security or securities discussed in this report may be a
component of the CS Model Portfolio and subject to such adjustments (which, given the composition of the CS Model Portfolio as a whole, may differ
from the recommendation in this report, as well as opportunities or strategies identified in Trading Alerts concerning the same security).
