John Leonard, CFA
Special situations, micro-cap, contrarian, CFA

Hawaiian Telcom Is An Undervalued Post-Bankruptcy Telecom

Investment thesis

Hawaiian Telcom (NASDAQ:HCOM) trades at a discount to its peer group despite high free cash flow, stabilizing revenue and a significantly lower debt load after its exit from bankruptcy.

Company overview

HCOM is the incumbent local exchange carrier (ILEC) in Hawaii with a state-of-the-art network that provides telecom services on all of Hawaii's major islands*. In 2005 Verizon (NYSE:VZ) carved out several Hawaiian assets, which merged and became HCOM.

As of 6/30/13, HCOM served 394,412 voice access lines (49% residential, 50% business, 1% public), 201,547 long distance lines (60% residential, 40% business), 109,721 high speed internet lines (82% residential, 17% business, 1% wholesale) and 13,618 video subscribers.

The two operating segments are:

The Wireline...

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