By:
Lauryn Trautmann, AIM Student at Marquette University
Disclosure:
The AIM Equity Fund currently holds this position. This article was written by
myself, and it expresses my own opinions. I am not receiving compensation for
it and I have no business relationship with any company whose stock is
mentioned in this article.
Summary
• Shenandoah Telecommunications Company (NASDAQ: SHEN) is a holding
company headquartered in Edinburg, VA that provides voice, video, and data
communication services for end user telecommunications customers in addition to
other telecommunications providers across the United States.
• SHEN's conclusion of
March Affiliate Agreement with Sprint allows for access to 500,000 additional
POPs in the mid-Atlantic.
• Number of subscribers transitioning from
nTelos to Sprint exceed management expectations.
• Acquisition with nTelos
has boosted total revenues, contributing to a 78.2 percent increase since 2015.
• SHEN runs into trouble
with the SEC with a delayed release of their Form 10-K. Extra time is needed to
evaluate their latest acquisition with NTELOS Holdings Corp.
Key points:
Recently
on April 6th, 2017, Shenandoah Telecommunications Company “Shentel” concluded
their prior Affiliate Agreement released in March to strengthen ties with
Sprint. The addition of 500,000 POPs (point-of-presence access points) will dramatically
increase service territory. This expansion will give Shentel the authorization
to function out of 6 million POPs in the mid-Atlantic as a Sprint affiliate.
Additionally, 20,000 subscribers will now be managed by Shentel and $32 million
has been set aside to upgrade the mid-Atlantic regions over the next three
years. Shentel plans to eventually open several retail locations under the
Sprint brand name in these new areas.
An acquisition with
nTelos completed on May 6th, 2016 has begun to show substantial
changes in the Shentel’s Wireless segment amounting to a 78.2 percent increase
in total revenue since 4th quarter 2015. These results have
uncovered that the migration of nTelos customers to Sprint are exceeding the
expectations of management. The Cable segment also increased revenues by 10
percent because of increased video prices and the Wireline segment increased
6.5 percent as the result of higher fiber lease revenues and service fees.
Shentel delayed releasing
their 10-K, triggering a notification of late filing with the Securities and
Exchange Commission (SEC). The reason for this delay is because the company
needs extra time to determine the valuation of their latest acquisition of
NTELOS Holdings Corp and the expansion with Sprint into the mid-Atlantic. The
company is paired with KPMG LLP to finish their internal audit work and
assurance reviews.
What has the stock done
lately?
Ever since breaking even in
quarter four of 2016, Shenandoah Telecommunications stock is up ~5%.
Predictions were that SHEN would end at a loss but instead, revenues for all
segments increased and are on track to keep rising due to their next planned
acquisition with NTELOS. This is a small increase since 2016, but an
improvement from the past month’s rage between $25 and $27.
Past Year Performance:
SHEN
had a change of -3.91 percent in value over the past year, and the stock is has
remained less volatile since August. Rising from a recent 52-week low in March
caused by weaknesses found in accounting controls, Shentel is making a quick
comeback. Even though SHEN is nowhere close to its previous 52-week high, there
seems to be no danger of price dipping any lower than where it is currently
placed. This is encouraging given that the past year contains some of the
largest price swings the company has recorded.
Source: FactSet
My Takeaway:
As
mentioned, Shentel has just recently finalized their expansion with Sprint, two
new acquisitions and their plans to expand into the mid-Atlantic. With these
new projects to add value, SHEN may get the boost it needs to reach target
prices even though it does not seem likely that the stock will make any sudden
spikes. In addition, management is confident that Shentel will continue to
increase revenues in all segments of the company, presumably pushing price
closer to the 52-week high of $42.66 and an average target price of around $40.
Source: FactSet
