A Bet for an Era of Excess by Tiernan Ray
Summary: Telecom stocks are on a tear. Some stocks, like SAVVIS Inc. (SVVS), have skyrocketed on the heels of buyout speculation. Its shares have more than doubled over the past year. Despite being deeply in the red, this ultra-high-end website hosting firm (for clients such as Reuters) plans to quintuple its spending in 2007 to 40% of projected total sales to build new facilities. The company has $384 million in debt, and trades at 19.4x 2007e Ebitda (earnings before interest, taxes, depreciation and amortization -- a measure of cash flow). In contrast to the excesses of SAVVIS, Cbeyond Inc. (CBEY) is a model of prudence: The company sells customized/value-added VoIP-run phone lines to small/medium sized companies, leasing its bandwidth per city as the company adds customers. Capital outlays are just 20% of 2007e sales, it made $8 million ($0.27/share) in 2006, added cash (it has $44 million) and has no debt. At $30.50, its shares are up 90% in the past 12 months, but at 17x Ebitda, they're still cheaper than SAVVIS's. Barron's likes Cbeyond as a "more conservative bet" on alternative high-growth telecom "that could pay off nicely, even in an era of excess."