In times like these, it's easy to develop tunnel vision as we watch telecom stocks spiral downward. So let's step back and see where valuations are now for USA based, non-ILEC, longhaul and metro fiber providers. I have compiled a quick list and calculated estimates of their current valuation based on Q2 cash and debt levels plus any known major changes since then (e.g. for XOHO). Where available, I used the lowest value for 2008 EBITDA given by guidance, else my own estimate - thus assuming some deterioration in Q3/Q4 but nothing immediately horrible. Corrections are welcome, but don't take my EBITDA numbers as a projection - it's just for a rough valuation. The cashflow situation comment is my opinion, such as it is.
|Symbol||Market cap||Net Debt||EV||2008 est Ebitda||EV/ Ebitda||Cashflow Picture|
|LVLT||2,280||6,158||8,438||950||8.9||Neutral to Slightly positive|
|GLBC||764||1,029||1,793||320||5.6||Neutral at best|
|ITCD||121||240||361||85||4.2||Neutral at best|
First we should keep in mind that Level 3's (LVLT) EV/EBITDA ratio is skewed upward by its high debt level relative to marketcap, as is that of XO Communications (XOHO). If we look at the others which are more comparable, we see that the sector is now consistently valued at an EV/EBITDA level of $5-6.
Perhaps the greatest fall has been that of Cogent (CCOI) which in May checked in at a ratio of over 15, but part of that can be attributed to pricing issues specific to Cogent. Yet they still manage to top the list after Level 3 and XO. The most shocking valuation here to me is that of TW Telecom (TWTC). Yes, I know everything is down hard, but TWTC ought to be at least valued higher relative to its brethren given the fact that it is now profitable, generates copious amounts of cashflow, and appears to be in no danger at all. Their sole vice is apparently to have admitted seeing spreading softness in September, something that now seems somewhat, err, what's the word? Oh yeah, obvious.
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