INAP: New 52 week high after earnings

Raymond James just raised INAP to strong Buy and PT to 7
Internap Corporation August 4, 2017
(INAP-NASDAQ) Company Comment
Frank G. Louthan IV, (404) 442-5867, Frank.Louthan@RaymondJames.com
Alexander Sklar, CPA, CFA, Sr. Res. Assoc., (404) 442-5804, Alex.Sklar@RaymondJames.com
Telecommunications Services: Data Centers _______________________________
Raising Rating and Price Target on Inflection Visibility
Recommendation: We are raising our rating to Strong Buy from Outperform following 2Q
results. Management’s increased guidance and consistent margin improvement over the last
twelve months, combined with a strong base position for its data centers, give us confidence
that shares can appreciate materially from current levels and the market cap is now much
more attractive to a wider variety of investors making a Strong Buy more appropriate.
 Event: Internap reported 2Q results with revenue and EBITDA of $69.6 million and $23.1
million, respectively, compared to our estimates of 69.9 million and $21.5 million. We
believe the success of its new management team, the capital infusion and debt
refinancing, its sales force restructuring, and its business reorganization/rationalization is
in place and the benefits of all this activity are becoming evident to investors.
 Sales force ramp. A key part of the success we foresee comes from the sales
revitalization of the past 12 months that we expect to boost top line trends over the next
12 months. With the continued ramp in sales plus a more appropriate comp structure
and channel partners, we have confidence in the top line trajectory inflecting by H1’18.
We believe this inflection will be instrumental in getting investors and potential acquirers
more interested, while driving multiple expansion.
 Phases II and III. Management has had success in re-negotiating its exposure to several
larger retail and wholesale colocation providers and believe that they will see similar
success with their remaining partner facilities. INAP has space leased in desirable
locations that we believe the other providers will see adjustments to their leases as
equally compelling, and this should create additional value.
 Utilization Upside. INAP is currently at 60% utilization in its data center colocation
footprint. This compares to industry averages in the high 70% to upper 80% range. We
believe this will allow INAP to expand significantly with very little incremental capex.
 Hosting and Cloud. The hosting and cloud business saw steady results, and we believe
this can be managed along and eventually monetized while driving better cash
contributions.
 Estimates: We are adjusting estimates to incorporate improved near term margins and
the bottoming out of the revenue trends in early 2018.
Valuation: Our $7.00 price target is based on ~10x our 2017E and 2018E EBITDA, and ~20x our
2018E FCF/share of $0.34, a discount to the industry average multiples of ~17x and ~20x. We
believe the improved operational performance, higher-margin business, and low capital
growth will drive this higher value. As such, we are taking the rating to a Strong Buy.

If I recall correctly, INAP is doing a reverse split taking effect later this month. Should the stock be down so much like it has been lately? Should I ride it out with what I have or buy more here? 

The R/S is supposed to be effected 11/20/17. The reason for the R/S is to obtain a double digit price per share which is supposed to instill confidence in the company on the part of potential customers, aka, the optics of the pps.

From the transcript of the last CC, there is this Q&A:

"Dan Kurnos

Got it. And then just one more for me. I know the M&A questions has been asked, so a little bit more in-depth. So just as we think about the reverse split, you mentioned the impact on the sales process. You know, I understand that you guys had a problem historically with customers worried about you going out of business, you've clearly cleaned up the balance sheet.

Is that just more of the same rationale on the reverse split - on the sales impact and does it help with M&A if you're considering using you know equity as a component of any deal?

Pete Aquino

So as you know, the reverse split is mostly algebra. It really don't mean anything to a lot of folks, especially the investors. But the optics of a single digit stock price is something psychologically we wanted to address because with 80 million shares out the reverse just puts us better - you know, pretty much in a better group.

And if we could get a - get the optics to improve, it helps customers too, because you know, they have to look at that and think about that, we get a phone call and they have to explain it. That's one call I could avoid. And so – and Bob gets those calls, I'm sure he'd like to avoid though.

So it’s made a lot of sense optically from a customer perspective and the amount of outstanding shares was very high certainly for small cap. So it came mostly from that angle and I think our normal stock appreciation would have been fine too.

But I wanted to jump on that as an opportunity to improve the optics and to the extent even others can use it against us, wanted to take that away too. So had a lot of good attributes as to why to do it. I was pleased that the shareholders approved that already. It's just a matter of timing and since we - you know, our recent high suggested anywhere near 5 was kind of the - at least the mental target we were thinking about and we just got prepared for it to do it."

seekingalpha.com/article/4119598-internap-corporations-inap-ceo-pete-aquino-q3-2017-results-earnings-call-transcript

Now, INAP has 83M shares O/S and 15M shares short.

10/13/2017 15,082,963 1,293,755 11.658284
9/29/2017 13,870,838 686,335 20.210011
9/15/2017 13,539,371 615,127 22.010692
8/31/2017 13,463,088 503,109 26.759784
8/15/2017 13,185,037 1,657,185 7.956286
7/31/2017 12,227,984 1,275,889 9.583893
7/14/2017 11,737,352 651,214 18.023802
6/30/2017 12,418,442 1,586,105 7.829521
6/15/2017 8,128,409 487,404 16.676944
5/31/2017 7,788,568 333,451 23.357459
5/15/2017 7,613,955 592,903 12.841822
4/28/2017 7,146,509 559,988 12.761897
4/13/2017 6,932,523 683,085 10.148844
3/31/2017 6,696,415 1,419,588 4.717154
3/15/2017 4,205,733 1,955,304 2.150936
2/28/2017 3,482,450 1,761,611 1.976855
2/15/2017 3,489,039 272,233 12.816371
1/31/2017 3,248,341 237,636 13.669398
1/13/2017 3,385,186 357,436 9.470747
12/30/2016 3,653,787 3,081,936 1.185549
12/15/2016 2,688,962 577,788 4.653890
11/30/2016 2,668,473 847,184 3.149815
11/15/2016 1,882,108 488,866 3.849947

And it seems, if a company announces some strategy to gain a competitive parity or edge, and it depends principally on a desired minimum pps, that shorts, being the sweethearts they are, might find thwarting that strategy simply too tempting to resist.

Meanwhile, your share count goes to 25% of it's current amount while your cost basis goes to 4 times the current amount.........which would be no big deal IF, after the split, the stock went higher. And that remains to be seen.