FBR Capital Upgrades NTELOS Holdings (NTLS) to Market Perform; Sees 33% Chance of Takeover

FBR Capital upgraded NTELOS Holdings (NASDAQ: NTLS) from Underperform to Market Perform with a price target of $6.50 (from $9.00) following yesterday's 45% drop in the stock price on lower guidance. The firm sees an increasing chance of a takeover.

Analyst David Dixon said, "We upgrade NTLS to Market Perform, remove our Top Pick designation, and lower our price target to $6.50, from $9, following a 45% drop in NTLS's share price in reaction to lower EBITDA guidance and its announcement that it will exit the eastern Virginia market. Consistent lack of investment drove erosion in franchise value amid intense competitive pressures. NTLS will shift its focus to the more profitable, but less urban, western markets (western VA and WV) and utilize ~$20M in annual cost savings to help fund the previously announced 4G LTE network upgrade (+$150M–$175M). It also announced the sale of 19 MHz of 1,900 MHz PCS spectrum in the eastern Virginia market to T-Mobile for ~$56M in cash (expected to close in November 2015). This, along with the sale of over 100 towers, should help fund $55M in exit costs. We applaud greater clarity provided by management regarding the linear decline in SNA revenues going forward, in contrast to prior expectations for a wholesale rebound. Sprint's strategic repositioning and recent draconian cap on roaming usage suggests this is unlikely. Bottom line: We believe it will be difficult, amid intensifying competition, to turn around the smaller retail franchise in order to offset a consistent decline in wholesale SNA revenues. However, we think there is a good possibility that NTLS could be acquired by a larger-scaled entity over the next 12 months. We incorporate a 33% takeout probability into our price target of $6.50."

For an analyst ratings summary and ratings history on NTELOS Holdings click here. For more ratings news on NTELOS Holdings click here.

Shares of NTELOS Holdings closed at $4.46 yesterday.

You May Also Be Interested In

• Deutsche Bank Upgrades Target Hospitality (TH) to Buy
• Rubrik Inc (RBRK) PT Raised to $120 at Cantor Fitzgerald Into Q2 Earnings
• Hesai (2525:HK) (HSAI) PT Lowered to HK$24.20 at Macquarie