Monday, April 17, 2017

A current AIM Fund holding: Shenandoah Telecom (SHEN) by Lauryn Trautmann. "Two New Acquisitions Bode Well for SHEN"

Shenandoah Telecommunications Co. (SHEN, $29.45): “Shentel Claiming Their Territory”
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.

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

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