Post by gutset on Nov 7, 2017 17:21:47 GMT
Raymond James report after the 3rd quarter earnings report:
Recommendation: We are maintaining a Strong Buy rating on INAP following 3Q results. Management’s increased guidance and consistent operational improvement over the last 12 months, combined with a strong base position for returning to growth, give us confidence that shares can appreciate materially from current levels and the market cap is now more attractive to a wider variety of investors
Event: Internap reported 3Q results with revenue and EBITDA of $68.9 million and $23.3 million, respectively, compared to our estimates of $67.9 million and $21.7 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 have benefits that are becoming evident to investors.
Tuck-in Acquisitions? Over the next 12 months, we still expect the biggest upside potential for the stock to come from a revenue inflection, which we believe can occur in mid-2018. That said, over the near term the company still has an opportunity to reduce its opex from renegotiating partner data centers and networking costs. One strategy would be to make smaller, accretive tuck-in acquisitions that add skill sets or offset higher-cost leases. Management assured it will only do deals that are accretive either outright or post synergies, which we believe can help drive improved operational performance. The reverse split is designed partly to help with such deals.
Margin Expansion a Mixed Bag. Internap recently converted a property to a capital lease, offsetting EBITDA pressure from the significant sales ramp and other growth investments. The FCF-neutral opex benefit from the lease change is $4 million per quarter. This offset increased costs as the company continues hiring. Internap announced a very sizeable customer win (discussed here) that should help 2H18 estimates as well. We continue to expect margins to remain in the 33%-34% range until revenue begins to stabilize as the new sales force and the longer-term cost-saving measures are implemented.
Estimates: We are adjusting our estimates and establishing Adj. FCF estimates for 2017 and 2018, in keeping with other data center operators under coverage.
Valuation: Our $7.00 price target is based on ~10x our 2017E and 2018E EBITDA and ~15x our 2018E Adj. FCF/share of $0.47, a discount to the industry average multiples of ~18x and ~22x. We believe the improved operational performance, higher-margin business, and low capital growth will drive this higher value. We believe INAP is an attractive merger target over time as well, with improving FCF and its current investment in sales and operations. As such, we remain at Strong Buy.
Recommendation: We are maintaining a Strong Buy rating on INAP following 3Q results. Management’s increased guidance and consistent operational improvement over the last 12 months, combined with a strong base position for returning to growth, give us confidence that shares can appreciate materially from current levels and the market cap is now more attractive to a wider variety of investors
Event: Internap reported 3Q results with revenue and EBITDA of $68.9 million and $23.3 million, respectively, compared to our estimates of $67.9 million and $21.7 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 have benefits that are becoming evident to investors.
Tuck-in Acquisitions? Over the next 12 months, we still expect the biggest upside potential for the stock to come from a revenue inflection, which we believe can occur in mid-2018. That said, over the near term the company still has an opportunity to reduce its opex from renegotiating partner data centers and networking costs. One strategy would be to make smaller, accretive tuck-in acquisitions that add skill sets or offset higher-cost leases. Management assured it will only do deals that are accretive either outright or post synergies, which we believe can help drive improved operational performance. The reverse split is designed partly to help with such deals.
Margin Expansion a Mixed Bag. Internap recently converted a property to a capital lease, offsetting EBITDA pressure from the significant sales ramp and other growth investments. The FCF-neutral opex benefit from the lease change is $4 million per quarter. This offset increased costs as the company continues hiring. Internap announced a very sizeable customer win (discussed here) that should help 2H18 estimates as well. We continue to expect margins to remain in the 33%-34% range until revenue begins to stabilize as the new sales force and the longer-term cost-saving measures are implemented.
Estimates: We are adjusting our estimates and establishing Adj. FCF estimates for 2017 and 2018, in keeping with other data center operators under coverage.
Valuation: Our $7.00 price target is based on ~10x our 2017E and 2018E EBITDA and ~15x our 2018E Adj. FCF/share of $0.47, a discount to the industry average multiples of ~18x and ~22x. We believe the improved operational performance, higher-margin business, and low capital growth will drive this higher value. We believe INAP is an attractive merger target over time as well, with improving FCF and its current investment in sales and operations. As such, we remain at Strong Buy.