Neustar (NSR): RFP Overhang Could Weigh on Stock, Says Deutsche Bank Pt $37 from $49
Deutsche Bank maintained a Hold rating on Neustar (NYSE: NSR) and lowered its price target to $37.00 (from $49.00). Analyst Nandan Amladi described Q4 results as solid but he thinks RFP overhang could weigh on stock.
"Despite these results and the buyback, the NAPM RFP decision will likely weigh on the stock, as it appears there may be more delays in the award decision. We are more cautious than before on these new developments and reiterate our Hold rating, reducing our PT to $37," said Amladi. "We had baselined a view that NSR would be able to renew the contract in return for a price concession of the order of 20%. But today’s press release from the company that their unsolicited submission in October 2013 was returned unopened, may signal that the NAPM is not entertaining any further negotiations with vendors. We therefore revise our baseline assumption to a 25% discount."
"A hypothetical two-vendor scenario can only be crudely modeled by slicing the Carrier segment in half and leaving NSR's cost structure relatively unchanged to be conservative. However, in reality, a second vendor would have to get their system up and running within 17 months for a July 1, 2015 deployment (when NSR's current contract ends), essentially reproducing NSR's efforts of the past 15 years in a highly compressed timeframe. A mission-critical, national infrastructure like this won’t be that easy to replicate. And service levels with a two-vendor solution are likely to be lower than what NSR has provided the industry, with coordination costs possibly offsetting any potential savings for the NAPM," he added.