Annotated article summary from this weekend's Barron's. Receive all our Barron's summaries by signing up here:
A Bet for an Era of Excess by Tiernan Ray
Summary: Telecom stocks are on a tear. Some stocks, like SAVVIS Inc. (NASDAQ: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. (NASDAQ: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."