Neutral Tandem Inc. (NASDAQ: TNDM)
Neutral Tandem Inc. (TNDM) provides tandem network interconnectivity between competitive carriers, including cable, broadband, wire-line and wireless enterprises within the United States. The Company provides these carriers a network without the need of switch-to-switch connections.
Founded in 2001, the Company is headquartered in Chicago, Illinois.
|
Share Statistics (8-Dec-09) |
|
FY 2007 |
FY 2008 |
% Chg |
Q3 2008 |
Q3 2009 |
% Chg |
|
| Symbol |
TNDM |
Revenue, $Mn |
85.56 |
120.9 |
41.3% |
31.2 |
44.7 |
43.5% |
| Current price |
$20.54 |
Gross marg. |
64.9% |
66.65% |
45.1% |
n/a |
n/a |
n/a |
| 52wk Range: |
$14.22-34.56 |
Oper. margin |
33.7% |
41.0% |
72.2% |
28.3% |
38.7% |
96.6% |
| Avg Vol (3m): |
786,066 |
Net margin |
7.32% |
20.0% |
287% |
19.8% |
24.8% |
80.0% |
| Market Cap. |
689.10M |
|
|
|
|
|
|
|
| Dil. Shares Outst. |
33.55M |
EPS, $ |
0.240 |
0.730 |
204% |
0.190 |
0.320 |
68.4% |
Source: Reuters.com, SEC Filings.
Financial Summary
| Financial Strength (8-Dec-2009) | Company | Industry | Sector | S&P 500 |
| Quick Ratio (MRQ) | 12.99 | 0.71 | 0.62 | 0.85 |
| Current Ratio (MRQ) | 12.99 | 0.77 | 0.65 | 1.00 |
| Long-Term Debt to Equity MRQ) | 0.00 | 63.52 | 44.44 | 130.15 |
| Total Debt to Equity (MRQ) | 0.31 | 70.22 | 62.94 | 200.30 |
Source: Reuters.com, SEC Filings.
Analyst Consensus
The mean of 12 analysts polled by Thomson Reuters rate shares of TNDM a “Buy.”
Analyst Recommendations and Revisions
| 1-5 Linear Scale | Current |
1 Month Ago |
2 Month Ago |
3 Month Ago |
| (1) BUY | 7 | 7 | 7 | 7 |
| (2) OUTPERFORM | 4 | 4 | 4 | 4 |
| (3) HOLD | 1 | 1 | 1 | 1 |
| (4) UNDERPERFORM | 0 | 0 | 0 | 0 |
| (5) SELL | 0 | 0 | 0 | 0 |
| No Opinion | 0 | 0 | 0 | 0 |
| Mean Rating | 1.50 | 1.50 | 1.50 | 1.50 |
Source: Reuters.com, SEC Filings.
Investment Highlights
TNDM provides tandem network interconnectivity between competitive carriers, including cable, broadband, wire-line and wireless providers within the United States. The Company provides these carriers a network without the need of switch-to-switch connections.
The underlying trend in telecommunications revenue has dropped, with expectations of lower sales of 25% for 2009. A modest rebound in economic activity will bode well for the industry in 2010. The Company, however, is expected to continue growing despite the overall decline and future softness in industry revenue.
The Company has reported increases in revenue, operating profits and earnings for the most recent three years. Revenue has grown at an annual rate of 50% for three years, as well as a growth rate of 54% in earnings per share. Analysts covering the Company expect earnings and revenue to grow at an average of 44% and 30%, respectively, for the next two years.
Competition from AT&T, Verizon and Qwest appear to be the main threat to the Company’s future performance, with migration to an IP model and industry consolidations due to regulation as two other concerns. Direct competition comes from Level 3 Communications LLC, Hypercube and Peerless Networks.
With margins large and capital requirements low, competition will increase rapidly. At some point, the Company will need to play one-up marketing to maintain market share, and will most likely result in squeezed margins in the process in a three to 10-year time horizon. As more competitors enter the sector, low prices and greater demand will play tug-o-war with revenue and earnings, according to Oppenheimer Investment Management.
According to Oppenheimer, the Company can maintain market share through offensive initiatives including, bundling services, discounted prices in new areas, long-term discount contacts, nationwide availability and advantages generated from the potential SIP.
The Company has a pending lawsuit against Peerless Networks for patent infringement, and expects a ruling in coming months.
Investors believe that the Company is well-run and plays the low-expectations game very well, citing consistent earnings surprises and somewhat quiet expansion. Moreover, the insider holdings disclosures reveal a healthy 6% ownership among management.
Technical Analysis
TNDM trades below its 13-day moving average. This bearish sign is significant because the 13-day moving average is downwardly sloped.
The MACD for TNDM currently indicates a bearish signal. The MACD is below the signal line, a 9-day moving average of the MACD. The MACD is below the critical level of 0, which implies the past price action had been negative. Overall, the chart is bearish.
Comparative Analysis
|
Company Name |
Ticker |
Price/ |
Mrkt. Cap. |
P/E |
P/S |
||
|
Dec-8-2009 |
symbol |
Share, $ |
$ Mn |
2009 |
2010 |
2009 |
2010 |
| AT&T Inc. |
T |
27.97 |
165,050 |
13.88 |
12.43 |
1.34 |
n/a |
| Qwest Communications Inter. |
Q |
4.11 |
7,100 |
9.28 |
12.84 |
0.56 |
n/a |
| Verizon Communications Inc. |
VZ |
33.25 |
94,450 |
17.05 |
13.30 |
0.90 |
n/a |
| Wireless Comm. Median |
|
|
|
15.08 |
n/a |
1.32 |
n/a |
| Neutral Tandem Inc. |
TNDM |
20.54 |
689.1 |
17.77 |
13.79 |
4.33 |
n/a |
Source: Thomson Financial
Insider Trading Activity
|
NET SHARES PURCHASE ACTIVITY Inside Purchases – Last 6 Months |
||
|
Shares |
Transaction |
|
| Purchases |
n/a |
0 |
| Sales |
1,712,810 |
34 |
| Net Shares Purchased (Sold) |
(1,712,810) |
34 |
| Total Insider Shares Held |
2.18M |
n/a |
| % Net Shares Purchased (Sold) |
(44.0%) |
n/a |
|
Net Institutional Purchases – Prior Qtr to Latest Qtr |
|
|
Shares |
|
| Net Shares Purchased (Sold) |
(477,691) |
| % Change in Institutional Shares Held |
(1.4%) |
Source: Yahoo Finance
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