TW Telecom - Aggressive Growth
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.