Monday, May 14, 2018

A current AIM Program Small Cap Equity Holding: Shenandoah Telecommunications Company (SHEN) by: Charlie Maleki. "Living in a Wireless World"

Shenandoah Telecommunications Company (SHEN, $34.15): “Living in a Wireless World”

By: Charlie Maleki, 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 that provides regulated and unregulated telecommunication services to end-user customers and other telecommunication providers.

• SHEN operates in three main business segments: Wireless, Cable TV, and Wireline (in order based on % of total revenue).

• The share price is down ~8.5% over the past month and ~13% over the past week, yet has still seen a value increase of ~7% over the past year.

• Expansion agreement with Sprint Corp. provides SHEN with increased customer base and PoP access.

• SHEN is a company to keep an eye on and any further decrease in value over the next couple weeks could be a red flag for investors everywhere.

Key points: On May 3, Shenandoah Telecommunications Company announced earnings for Q1 2018. Of their three business segments, two (Cable TV and Wireline) experienced positive growth from Q1 2017 and one (Wireless) experienced negative growth. The Cable TV segment increased $2.1 million or 7.8% to $28.5 million. The Wireline segment increased 2.9% to $19.7 million. Finally, the Wireless segment decreased $5.1 million or 4.4%. Overall, this lead to a top-line decrease of 1.4% compared to Q1 2017.

SHEN management has been actively pushing expansion opportunities. On Feb. 1, 2018, an expansion agreement was signed with Sprint Corp. to expand SHEN’s wireless service area to include certain areas in Kentucky, Pennsylvania, Virginia, and West Virginia. This expansion lead to an addition of 1.1 million PoPs (Point of Presence) and 54 thousand subscribers.

On Feb. 16, 2018, SHEN mad a significant amendment to their debt. They amended credit agreement to reduce their interest rates by 0.5%. This will save the company approximately $12 million over the term of the debt.

Moving forward, the biggest risk that SHEN faces is the increasing amount of competition in every segment of their business. Most of their competitors possess greater resources, have more extensive coverage areas, and can offer more services. This provides their competitors with increased opportunity to expand and develop new products and offerings. As their competitors do this, some of their subscribers may select other provider’s offerings.

What has the stock done lately?

Over the past month Shenandoah Telecommunications Company’s stock is down ~8.5%. There has been an even more drastic drop off over the past week as the stock is down ~13% since April 27, 2018. This could be a result of difficulties integrating themselves into their new business markets as well as increased outside pressure from competitors growing into their markets and stealing chunks of their customer base.

Past Year Performance: SHEN has increased ~7% in value over the past year. However, the stock price has been on a downward trend is this has the potential to continue. When being compared to their competitors, SHEN has experienced higher stability in price over the past year. The 52 week range is $28.00 - $41.80.

 Source: FactSet

My Takeaway

Much like the rest of the Telecommunications sector domestically, Shenandoah Telecommunications Company has been struggling to find new growth avenues to drive improvement. The integration of new technologies into the industry, while exciting, can be tedious and difficult. I believe SHEN is at a tipping point where they either discover new catalysts for future growth, or do not make any changes and continue their downward trend. SHEN is a company to keep an eye on, however, no decisions regarding investments should be made until further proof of motivation to evolve and grow is shown.

Source: FactSet