There has been a lot of talk lately about the inflationary implications of the falling dollar, rising commodity prices, and rising interest rates. There is also a number of negative divergences in market breadth indicators. It certainly looks like all of those bearish influences have finally hit the stock market this week. A couple of bearish reports released today didn't help as well. Consumer confidence fell to a seven-month low and import prices rose to the highest level in seven months. The latter number just intensified fears of rising inflation. Now we're in the month of May which is traditionally the start of the weakest six months of the year. From a seasonal standpoint, this would be a logical time to expect some serious market selling. That's also true from a technical charting viewpoint.
A more serious sell signal would be given by an S&P 500 close beneath its mid-April low at 1280. The Nasdaq market has already broken its 200 day line support level.
Conservative investors might consider moving some money out of stocks and into a money market fund.
Saturday, May 13, 2006
Friday, May 12, 2006
Broadwing Entered Into a Purchase Agreement
Broadwing Corporation (the "Company") entered into a Purchase Agreement (the "Purchase Agreement") dated as of May 9, 2006 with Jefferies & Co., Inc. and CIBC World Markets Corp. (collectively, the "Initial Purchasers"), relating to the private placement of $150,000,000 in aggregate principal amount of the Company's 3.125% Convertible Senior Debentures due 2026 (the "Debentures"). The Purchase Agreement contains customary representations and warranties of the parties and indemnification and contribution provisions whereby the Company, on the one hand, and the Initial Purchasers, on the other hand, have agreed to indemnify each other against certain liabilities.
The Debentures will be convertible into the Company's common stock at an initial fixed conversion rate of 60.2410 shares per $1,000 principal amount of Debentures (equivalent to an initial conversion price of approximately $16.60 per share, which represents a 25% premium based on a closing price of $13.28 per share on May 9, 2006), subject to adjustment in certain circumstances. In addition, the Debentures will accrue interest at a rate of 3.125% per annum payable semi-annually in cash. The net proceeds from the offering, after deducting the Initial Purchasers' discount and the estimated offering expenses payable by the Company, are approximately $145 million assuming no exercise of the Initial Purchasers' additional purchase option. The Company intends to use the net proceeds from the sale of the Debentures for general corporate purposes.
The Debentures will be redeemable at the Company's option on or after May 15, 2013, at a redemption price equal to 100% of the principal amount of the Debentures being redeemed plus accrued and unpaid interest and any liquidated damages, if any. The Debentures will be subject to repurchase at the option of holders on May 15, 2013, May 15, 2016 and May 15, 2021, and upon the occurrence of certain designated events at a repurchase price equal to 100% of the principal amount of the Debentures being repurchased plus accrued and unpaid interest and any liquidated damages, if any.
The Debentures will be convertible into the Company's common stock at an initial fixed conversion rate of 60.2410 shares per $1,000 principal amount of Debentures (equivalent to an initial conversion price of approximately $16.60 per share, which represents a 25% premium based on a closing price of $13.28 per share on May 9, 2006), subject to adjustment in certain circumstances. In addition, the Debentures will accrue interest at a rate of 3.125% per annum payable semi-annually in cash. The net proceeds from the offering, after deducting the Initial Purchasers' discount and the estimated offering expenses payable by the Company, are approximately $145 million assuming no exercise of the Initial Purchasers' additional purchase option. The Company intends to use the net proceeds from the sale of the Debentures for general corporate purposes.
The Debentures will be redeemable at the Company's option on or after May 15, 2013, at a redemption price equal to 100% of the principal amount of the Debentures being redeemed plus accrued and unpaid interest and any liquidated damages, if any. The Debentures will be subject to repurchase at the option of holders on May 15, 2013, May 15, 2016 and May 15, 2021, and upon the occurrence of certain designated events at a repurchase price equal to 100% of the principal amount of the Debentures being repurchased plus accrued and unpaid interest and any liquidated damages, if any.
Thursday, May 11, 2006
Wednesday, May 10, 2006
We Only See Upside From Here On BWNG
Expect the stock to move up a few points in the very near term. All of the pressure will be off of the company soon enough now that their $150M has been raised.
Also, we are still waiting for news about what Broadwing plans to do with their $300M war chest.
Reminder: The annual shareholder meeting is this Friday. Something's up!
Also, we are still waiting for news about what Broadwing plans to do with their $300M war chest.
Reminder: The annual shareholder meeting is this Friday. Something's up!
Tuesday, May 09, 2006
Several Companies Rush To Raise Money -
TWTC, BWNG, NFLX
In March, Time Warner Telecom (TWTC) said it launched a convertible debt offering of $200 million in senior notes due 2026, with an option for the underwriters the option to purchase up to $30 million more of the bonds to cover possible over-allotments. If you check your charts TWTC fell 5% to $14.11 in mid-day trading down from the previous day high of around $16.00. Within 5 trading days the stock rebounded from $14.11 to $18.73 or 32.7%.
The other day, out of nowhere, Netflix a debt free company announced that it was raising $100 million in a stock offering at $30.00. After the news, the stock fell to the $29.60 level and today shot up over $2.00 to $32.18 or 8.7% from the drop. Tomorrow it should continue its run.
We would expect the same activity from Broadwing in the next few days once we pass the initial shock of the company offering convertible debentures.
Given all that we know, Broadwing must be setting themselves up for a very juicy acquisition to continue to make the company more EBITDA profitable by reducing internal costs. Assuming a 50/50 cash to equity ratio, Broadwing's $300 million in liquidity post-deal would give them up to $600 million in acquisition buying power. So, looking at a best case scenario their leverage = $600 million in acquisition Enterprise Value (EV), 3.0x post-synergy EBITDA for the takeout. Theoretically, Broadwing's '07 EV/EBITDA multiple could fall from the current state of around 20.0x to a low of 6.0x. This would be very bullish. Stay tuned for more updates.
The other day, out of nowhere, Netflix a debt free company announced that it was raising $100 million in a stock offering at $30.00. After the news, the stock fell to the $29.60 level and today shot up over $2.00 to $32.18 or 8.7% from the drop. Tomorrow it should continue its run.
We would expect the same activity from Broadwing in the next few days once we pass the initial shock of the company offering convertible debentures.
Given all that we know, Broadwing must be setting themselves up for a very juicy acquisition to continue to make the company more EBITDA profitable by reducing internal costs. Assuming a 50/50 cash to equity ratio, Broadwing's $300 million in liquidity post-deal would give them up to $600 million in acquisition buying power. So, looking at a best case scenario their leverage = $600 million in acquisition Enterprise Value (EV), 3.0x post-synergy EBITDA for the takeout. Theoretically, Broadwing's '07 EV/EBITDA multiple could fall from the current state of around 20.0x to a low of 6.0x. This would be very bullish. Stay tuned for more updates.
Monday, May 08, 2006
Scouring Through Our Research
Even Cramer Says Buy, Buy, Buy
Monday May 8, 2006 Even Cramer says Buy, Buy, Buy and he has been on the opposite side of us on a few occasions where we have outlined some very good ideas for investors contrary to Cramer's picks and flip flopping. Today we are on the same side - both liking BWNG!
Also - Re-Posted from Cramer's Mad Money Show on CNBC, March 2006 - - - - - -
'UNDER THE RADAR'
LET'S GO IN THE WAYBACK MACHINE - 5 YEARS. BWNG HAD A VISION. IT WAS A VISION FOR AN ALL-OPTICAL NETWORK THAT COULD BE USED TO TRANSMIT VOICE AND DATA EVERYWHERE!
OH, WHAT DID THESE GUYS DO AT BWNG? THEY SPENT A FORTUNE BUILDING THE NETWORK. AND THEN, THE STOCK SOARED TO $1000 (REVERSE SPLIT ADJUSTED).
EVEN IF YOU'VE NEVER HEARD OF BWNG, YOU KNOW WHAT HAPPENED NEXT. NATURALLY, BWNG ALMOST WENT BANKRUPT BUILDING THE DARN THING. AND THE STOCK SANK ALL THE WAY TO $3 A SHARE.
JUST LOOK AT THIS CHART (5.5 YEAR CHART SHOWN), WILL YA? THAT IS A CHART OF HEARTBREAK; THAT IS A CHART OF HEAD CUT OFF; THAT IS A VERITABLE TRAIN WRECK!
OBVIOUSLY, WITH A CHART LIKE THAT, I'VE HATED THIS CO. FOR MANY YEARS. THEY WERE JUST BUILDING THIS NETWORK FOR YEARS, AND LEAKING MONEY ALL OVER THE PLACE. HOW COULD I, CRAMER, LIKE A STOCK LIKE THAT?
BUT, YOU KNOW WHAT? THINGS CHANGE; THINGS CAN GET BETTER. NOW, BWNG IS FINALLY FINISHED BUILDING THEIR OPTICAL NETWORK. IT'S UP AND RUNNING AND BWNG SHOULD HAVE POSITIVE CASH FLOW NEXT YEAR.
ALREADY, THE STOCK HAS $1.50 IN CASH PER SHARE, AND IT'S ONLY TRADING AT $9, GIVE OR TAKE, BUT NOBODY SEEMS TO NOTICE! EXCEPT FOR CRAMER.
BWNG IS FINALLY BREAKING OUT, AND THE ONLY PEOPLE WHO KNOW THAT ARE THE PEOPLE WHO WORK THERE, AND CRAMER!
EVEN THE WORST, MOST BROKEN CO., CAN STILL TURN ITSELF AROUND, AND YOU CAN CATCH THAT TURNAROUND, AS LONG AS YOU KNOW WHAT TO LOOK FOR.
I THINK BWNG IS NOW A HUGE BUY!! YOU CANNOT ALLOW YOURSELF TO BECOME INFLEXIBLE JUST BECAUSE THE STOCK CAME SCREAMIN' DOWN 1000 POINTS, AND THEN FLATLINED FOR A FEW YEARS. YOU BECOME INFLEXIBLE - YOU MISS OPPORTUNITIES, AND OPPORTUNITY IS WHAT THIS GAME IS ALL ABOUT.
I THINK YOU WANT SOME COLD, HARD EVIDENCE BEFORE YOU PRONOUNCE SOMETHING AS BROKEN AS THE BWNG, TO BE ALIVE AND KICKING.
THE POSITIVE CASH FLOW IS GOOD; CASH ON HAND IS GOOD. THAT'S FAR, FAR FROM ENOUGH. OKAY, SO THEY'RE DONE WITH THEIR OPTICAL NETWORK. YOU STILL NEED MORE THAN THAT BEFORE YOU PULL THE TRIGGER ON SOMETHING AS DECIMATED AS BWNG.
YOU CAN REALLY SEE THE TURNAROUND HAPPENING IN THE NUMBERS. FOR THE 4TH STRAIGHT QTR., BWNG IMPROVED THEIR CASH FLOW BURN RATE, SO THEY'RE EATING MUCH LESS MONEY. LAST QTR. WAS THE FIRST QTR. IN 5 YEARS WHERE THE EARNINGS BEFORE INTEREST, TAX AND DEPRECIATION (EBITDA), FIRST TIME THAT IT BROKE EVEN.
BWNG JUST MADE THEIR LAST CONVERTIBLE PAYMENT, AND NOW THE STOCK IS ALMOST DEBT-FREE.
IF YOU WANT TO KNOW WHY THE STOCK HAS ALREADY GONE FROM $4 BUCKS TO ALMOST $9 AND CHANGE IN THE PAST 10 MONTHS - ALL OF THAT GREAT STUFF IS WHY.
BUT I WASN'T GOING TO RECOMMEND BWNG BECAUSE THEY BURNED LESS CASH OVER 3 QTR.S. HEY, THAT'S DARNING WITH FAINT PRAISE. I NEEDED MORE WEIGHT BEHIND THE EVIDENCE BEFORE I WAS GOING TO PUT MY NECK OUT ON THE LINE.
BUT NOW THE NUMBERS ADD UP. WITH $1.50 IN CASH PER SHARE, THE CO. CAN GO THROUGH 10 QTRS. BURNING MONEY AT THE PRESENT RATE, BUT THEY'LL BE FREE CASH FLOW POSITIVE NEXT YEAR. SO IT LOOKS LIKE THEY'RE KIND OF SET WITH THE MOOLAH.
THEIR VOICE REVENUES ARE DOWN, BUT THEIR DATA AND BROADBAND GROUP GREW 15% LAST QTR. BWNG HAS BEEN SEEING INCREASED ENTERPRISE DEMAND FOR ITS PRODUCT BECAUSE THEY SPENT A FORTUNE BUILDING THIS BEST-IN-CLASS OPTICAL NETWORK. THEY ALMOST WENT UNDER BUT, PRETTY SOON, BWNG SHOULD BE GETTING OUT OF THE RED. THAT IS AMAZING; I CAN'T BELIEVE IT MYSELF.
THE BOTTOM LINE!: I THINK YOU SHOULD BE FLEXIBLE AND BUY SOME BWNG! AND I NEED YOU TO DO IT NOW BEFORE EVERYBODY ELSE STARTS YAPPING THEIR DARN FOOL HEADS OFF ABOUT THE TURNAROUND, AND YOU MISSED THE BOAT!
Also - Re-Posted from Cramer's Mad Money Show on CNBC, March 2006 - - - - - -
'UNDER THE RADAR'
LET'S GO IN THE WAYBACK MACHINE - 5 YEARS. BWNG HAD A VISION. IT WAS A VISION FOR AN ALL-OPTICAL NETWORK THAT COULD BE USED TO TRANSMIT VOICE AND DATA EVERYWHERE!
OH, WHAT DID THESE GUYS DO AT BWNG? THEY SPENT A FORTUNE BUILDING THE NETWORK. AND THEN, THE STOCK SOARED TO $1000 (REVERSE SPLIT ADJUSTED).
EVEN IF YOU'VE NEVER HEARD OF BWNG, YOU KNOW WHAT HAPPENED NEXT. NATURALLY, BWNG ALMOST WENT BANKRUPT BUILDING THE DARN THING. AND THE STOCK SANK ALL THE WAY TO $3 A SHARE.
JUST LOOK AT THIS CHART (5.5 YEAR CHART SHOWN), WILL YA? THAT IS A CHART OF HEARTBREAK; THAT IS A CHART OF HEAD CUT OFF; THAT IS A VERITABLE TRAIN WRECK!
OBVIOUSLY, WITH A CHART LIKE THAT, I'VE HATED THIS CO. FOR MANY YEARS. THEY WERE JUST BUILDING THIS NETWORK FOR YEARS, AND LEAKING MONEY ALL OVER THE PLACE. HOW COULD I, CRAMER, LIKE A STOCK LIKE THAT?
BUT, YOU KNOW WHAT? THINGS CHANGE; THINGS CAN GET BETTER. NOW, BWNG IS FINALLY FINISHED BUILDING THEIR OPTICAL NETWORK. IT'S UP AND RUNNING AND BWNG SHOULD HAVE POSITIVE CASH FLOW NEXT YEAR.
ALREADY, THE STOCK HAS $1.50 IN CASH PER SHARE, AND IT'S ONLY TRADING AT $9, GIVE OR TAKE, BUT NOBODY SEEMS TO NOTICE! EXCEPT FOR CRAMER.
BWNG IS FINALLY BREAKING OUT, AND THE ONLY PEOPLE WHO KNOW THAT ARE THE PEOPLE WHO WORK THERE, AND CRAMER!
EVEN THE WORST, MOST BROKEN CO., CAN STILL TURN ITSELF AROUND, AND YOU CAN CATCH THAT TURNAROUND, AS LONG AS YOU KNOW WHAT TO LOOK FOR.
I THINK BWNG IS NOW A HUGE BUY!! YOU CANNOT ALLOW YOURSELF TO BECOME INFLEXIBLE JUST BECAUSE THE STOCK CAME SCREAMIN' DOWN 1000 POINTS, AND THEN FLATLINED FOR A FEW YEARS. YOU BECOME INFLEXIBLE - YOU MISS OPPORTUNITIES, AND OPPORTUNITY IS WHAT THIS GAME IS ALL ABOUT.
I THINK YOU WANT SOME COLD, HARD EVIDENCE BEFORE YOU PRONOUNCE SOMETHING AS BROKEN AS THE BWNG, TO BE ALIVE AND KICKING.
THE POSITIVE CASH FLOW IS GOOD; CASH ON HAND IS GOOD. THAT'S FAR, FAR FROM ENOUGH. OKAY, SO THEY'RE DONE WITH THEIR OPTICAL NETWORK. YOU STILL NEED MORE THAN THAT BEFORE YOU PULL THE TRIGGER ON SOMETHING AS DECIMATED AS BWNG.
YOU CAN REALLY SEE THE TURNAROUND HAPPENING IN THE NUMBERS. FOR THE 4TH STRAIGHT QTR., BWNG IMPROVED THEIR CASH FLOW BURN RATE, SO THEY'RE EATING MUCH LESS MONEY. LAST QTR. WAS THE FIRST QTR. IN 5 YEARS WHERE THE EARNINGS BEFORE INTEREST, TAX AND DEPRECIATION (EBITDA), FIRST TIME THAT IT BROKE EVEN.
BWNG JUST MADE THEIR LAST CONVERTIBLE PAYMENT, AND NOW THE STOCK IS ALMOST DEBT-FREE.
IF YOU WANT TO KNOW WHY THE STOCK HAS ALREADY GONE FROM $4 BUCKS TO ALMOST $9 AND CHANGE IN THE PAST 10 MONTHS - ALL OF THAT GREAT STUFF IS WHY.
BUT I WASN'T GOING TO RECOMMEND BWNG BECAUSE THEY BURNED LESS CASH OVER 3 QTR.S. HEY, THAT'S DARNING WITH FAINT PRAISE. I NEEDED MORE WEIGHT BEHIND THE EVIDENCE BEFORE I WAS GOING TO PUT MY NECK OUT ON THE LINE.
BUT NOW THE NUMBERS ADD UP. WITH $1.50 IN CASH PER SHARE, THE CO. CAN GO THROUGH 10 QTRS. BURNING MONEY AT THE PRESENT RATE, BUT THEY'LL BE FREE CASH FLOW POSITIVE NEXT YEAR. SO IT LOOKS LIKE THEY'RE KIND OF SET WITH THE MOOLAH.
THEIR VOICE REVENUES ARE DOWN, BUT THEIR DATA AND BROADBAND GROUP GREW 15% LAST QTR. BWNG HAS BEEN SEEING INCREASED ENTERPRISE DEMAND FOR ITS PRODUCT BECAUSE THEY SPENT A FORTUNE BUILDING THIS BEST-IN-CLASS OPTICAL NETWORK. THEY ALMOST WENT UNDER BUT, PRETTY SOON, BWNG SHOULD BE GETTING OUT OF THE RED. THAT IS AMAZING; I CAN'T BELIEVE IT MYSELF.
THE BOTTOM LINE!: I THINK YOU SHOULD BE FLEXIBLE AND BUY SOME BWNG! AND I NEED YOU TO DO IT NOW BEFORE EVERYBODY ELSE STARTS YAPPING THEIR DARN FOOL HEADS OFF ABOUT THE TURNAROUND, AND YOU MISSED THE BOAT!
Something Is Definately In The Works At Broadwing - BWNG
Broadwing currently has $100 million in the bank, a $75 million line of credit and has just announced that it "plans to raise" another $125 million. They haven't done it. They just "plan" to do so they say. For what its worth, there were no details attached to this announcement either, so the only thing that you can read into this is that they have opened up the offering for bidding by institutions who may want more of what Broadwing has to offer its good investors. Since nothing is finalized, our feeling is that if Broadwing doesn't get the terms that they want, the offering could be cancelled. It is quite possible that the current shares could get bid up like we have seen in other recent offerings with TWTC and GLBC. Maybe this is their way of shaking out the small investors for all we know at this point before the shares move higher? What could they be up to? Dr. Huber the former CEO says that their fiber optic lines would cost over $5.5 billion to replace and those lines are currently valued at only $1 billion.
Also, keep in mind that the annual shareholder meeting is this Friday, May 12, 2006. They would be crazy not to announce something poistive by Thursday. Lastly, lets not forget that CIBC World Markets just gave the stock a BUY rating about a week ago with a target of $18.00. Are they underwriting the offering? We shall have to see what they have up their sleeves!
A funny coincidence, Netflix - NFLX also just announced that they were raising $100 million too and their stock (like BWNG) has trippled over the last year. They don't need the money either?
We will have to be patient and eventually investors will need to make some serious decisions, but not until the company tells its story on May 12 at the annual shareholders meeting.
We would expect an acquisition announcement soon to explain the use of their funds so that the company can further increase their EBITDA position.
Also, keep in mind that the annual shareholder meeting is this Friday, May 12, 2006. They would be crazy not to announce something poistive by Thursday. Lastly, lets not forget that CIBC World Markets just gave the stock a BUY rating about a week ago with a target of $18.00. Are they underwriting the offering? We shall have to see what they have up their sleeves!
A funny coincidence, Netflix - NFLX also just announced that they were raising $100 million too and their stock (like BWNG) has trippled over the last year. They don't need the money either?
We will have to be patient and eventually investors will need to make some serious decisions, but not until the company tells its story on May 12 at the annual shareholders meeting.
We would expect an acquisition announcement soon to explain the use of their funds so that the company can further increase their EBITDA position.
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