Many leading funds, including Fidelity Investments and Blackrock Inc., filed forms 13-D and 13-G (and form 4) with the SEC last week (May 7th to 11th, 2012), indicating that they had amended their ownership in U.S. traded public companies. Based on our analysis, the following are two of the most noteworthy filings in the telecom group (a prior article discussing last week's institutional 5% ownership filings in the basic materials and energy group can be accessed by clicking on the above hyperlink), in which institutions accumulated stocks in the group that were plunging to new multi-year lows (for more info on Forms 13-D and 13-G, and how to interpret that, please refer to the end of this article):
Polycom Inc. (NASDAQ:PLCM): PLCM develops communication products that enable unified video, voice and content collaboration for enterprise, government, education and healthcare customers. On Wednesday, Australia's leading provider of diversified financial services Macquarie Group Ltd. filed SEC Form SC 13G/A indicating that it holds 18.5 million or 10.3% of outstanding shares, an increase from the 14.6 million shares it held at the end of Q4, thereby keeping its position as the second largest institutional holder of PLCM, behind mutual fund powerhouse Fidelity Investments that held 26.6 million shares at the end of Q4.
PLCM shares have plunged to multi-year lows, down over 30% since the company issued downside guidance (21c-23c v/s 30c) to its Q1 (March) in the first week of April. Subsequently, the company reported its Q1 in mid-April, with revenues and earnings coming in-line, but projected Q2 revenues and earnings (20c-22c v/s 24c) below consensus estimates. Its shares now trade at 11 forward P/E and 1.6 P/B compared to averages of 31.1 and 3.2 for the wireless equipment group. However, despite that, we believe that its shares are still a high-risk play given the strong competition in the videoconferencing market, particularly in defending its share vs. giant telecom equipment provider Cisco Systems (NASDAQ:CSCO), recent quarter earnings misses which raise execution issues, and a generally difficult macro-economic scenario that can continue to affect corporate purchasing.
Synchronoss Technologies Inc. (NASDAQ:SNCR): SNCR is a provider of on-demand transaction management solutions that allow telecom service providers to manage customer orders. On Thursday, Wells Fargo & Co., with $137 billion in 13-F assets, filed SEC Form SC 13G/A indicating that it holds 4.4 million or 11.3% of outstanding shares, an increase from the 2.4 million shares it held at the end of Q4, thereby still retaining its position as the second largest institutional holder of SNCR, behind Fidelity Investments that held 5.6 million shares at the end of Q4.
SNCR shares plunged last week, down about 30%, after the company reported its Q1 (March), with revenues coming in-line and beating earnings estimates (26c v/s 23c). However, it guided down Q2 revenues ($65-$68 million v/s $68.6 million), mostly on account of slowing growth at its largest customer AT&T Inc. (NYSE:T) that accounts for about half its sales. Its shares now trade at 20 current P/E on a TTM (trailing-twelve-month) basis and 2.3 P/B compared to averages of 30.1 and 3.5 for its peers in the Internet software group. Brokers generally have been mixed with Wells Fargo downgrading it to Market Perform and a $25-26 price target, while Wedbush marginally cut its target from $42 to $40, arguing that the lower sales resulting from the slowdown at AT&T would be compensated by expansion of its relationship with Verizon Communications (NYSE:VZ) and Vodafone Group Plc (NASDAQ:VOD).
Besides the two above, institutional investors also made major moves, selling their positions in the following two telecom stocks with plunging stock prices:
- Broadband wireless network services provider Clearwire Corp. (CLWR), in which Fidelity Investments filed SEC Form SC 13G/A indicating that it holds 41.4 million shares, a decrease from the 51.3 million shares it held at the end of Q4; and
- Windstream Corp. (NASDAQ:WIN), that provides communications and technology solutions in the U.S., including IP-based voice and data services, multi-protocol label switching networking, data center and managed services, hosting services and communications systems to business and government agencies, in which mega fund Blackrock Inc., the world's largest and most prominent asset manager, with over $3.5 trillion in assets under management, filed SEC Form SC 13G/A indicating that it holds 29.3 million or 4.99% of outstanding shares, a decrease from the 33.54 million shares it held at the end of Q4.
Additional major institutional filings last week in the telecom group included one in Sprint Nextel Corp. (NYSE:S) that offers a comprehensive range of wireless and wireline communications products and services to consumer, businesses and government markets in the U.S., Puerto Rico and the U.S. Virgin Islands. Last Wednesday, Blackrock filed SEC Form SC 13G/A indicating that it held 149.0 million or 4.97% of outstanding shares, a decrease from the 166.7 million shares it held at the end of Q4.
Form 13-D is commonly referred to as the "beneficial ownership report," and is required when a person or a group of persons acquires beneficial ownership of more than 5% of the voting class of a company's equity securities; form 13-G is the abbreviated version of the form that is allowed under certain circumstances.
The information in forms 13-D and 13-G is extremely timely as it is required to be filed within 10 days after the purchase, in contrast to 13-F quarterly filings by Institutions that are filed every three months. The information contained in 13-F filings, thereby, can as much as 18 weeks old by the time it is disseminated to the public. Furthermore, by virtue of their 5% ownership in public companies, the information contained in the 13-D and 13-G filings indicates only high confidence or high conviction moves by institutions and insiders, and hence can be interpreted to be of greater relevance to the investment community than the 13-F quarterly filings. Furthermore, 13-D and 13-G filings often are a precursor to a hostile takeover, company breakups and other "change of control" events, and often they will include a letter to management explaining the reason for their taking a large stake in the company.
Credit: Fundamental data in this article and company descriptions are based on SEC filings, Zacks Investment Research, Yahoo, Thomson Reuters and Briefing.com. The information and data is believed to be accurate, but no guarantees or representations are made.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
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