TW Telecom Inc.
(
TWTC
) has gained nearly 56% since October 2011 thanks in large part to
the growing demand for higher bandwidth from business enterprises
and the company's extensive network of fiber-optic cables. This
leading provider of telecom managed network services reported solid
first-quarter 2012 financial results that included an 18.2%
positive EPS surprise.
Earnings estimates have been moving higher since then, making TW
Telecom a Zacks #2 Rank (Buy) stock on July 27, 2012. The previous
quarter marked the company's 30th consecutive with sequential
revenue growth. With long-term growth potential of 20.1%, TW
Telecom is a lucrative investment opportunity for aggressive growth
investors.
A Strong Quarter
On May 1, TW Telecom reported first-quarter 2012 net earnings per
share of 13 cents, surpassing the Zacks Consensus Estimate by 2
cents or 18.2% and the year-ago earnings by 5 cents or 62.5%. Total
operating revenue of around $358.9 million beat the Zacks Consensus
Estimate by 0.3% and increased 7.9% year over year.
In the first quarter, TW Telecom improved several financial
metrics. Adjusted gross profit increased 8.7% to $210.1 million.
Adjusted EBITDA grew 8.5% to $131.8 million. Free cash flow
improved a whopping 43.3% to $37.3 million. Segment wise, Data
& Internet Services revenue and Voice Services revenue
increased 16.9% and 7.9%, respectively, whereas Network Services
revenue and Intercarrier Compensation revenue declined 5.3% and
2.2%, respectively.
Attractive Estimate Revisions
Over the last 90 days, the Zacks Consensus Estimate for 2012 moved
up 11.8% to 57 cents, while it increased 10.4% to 74 cents for
2013. The current Zacks Consensus Estimate for 2012 indicates a
year-over-year jump of 46%, while the 2013 estimate implies a
year-over-year improvement of 30.6%.
Valuation Premium Warranted
Valuation of TW Telecom is relatively expensive. The current
forward P/E of 42.74x implies a premium of 159.7% over the peer
group average of 16.46x. Similarly, the current P/S ratio of 2.63x
reflects a 130.7% premium to the peer group average of 1.14x. The
premium valuation is warranted as the company continues to
demonstrate the successful expansion of enterprise customers for
its network services.
TW Telecom has a solid business model with a stable recurring
revenue stream as depicted by its current long-term growth
potential of 20.1%. The company generally enters into long-term
contracts (3-5 years) with its clients, providing top-line
stability especially during adverse economic conditions.
Chart Shows Growth Potential
The chart below shows a secular positive price movement since
October 2011, barring some minor pullbacks. The stock has been
consistently trading above its 50 and 200-days moving averages from
May 2012. Average volume also remains quite good at 1,380K. This
uptrend should encourage investors as the stock is likely to be on
the rise due to growing demand for bandwidth to implement business
Ethernet, IP-based converged networks and VPN solutions.
Littleton, Colorado headquartered TW Telecom Inc. was founded in
1993. Formerly, known as Time Warner Telecom Inc. the company
changed its name to TW Telecom in 2008. It provides several managed
network services to business enterprises in the U.S., including
IP-based converged services, Ethernet, Internet Access, Voice, VPN,
VoIP, and network security. As of March 31, 2012, TW Telecom had
27,495 customers and an extensive fiber-optic network of
approximately 28,000 route miles (including 21,000 metro route
miles) connected to 15,095 buildings.
TW TELECOM INC (TWTC): Free Stock Analysis
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