We are on the verge of huge technological change, according to analysts at Oppenheimer.
They see a coming convergence of mobile and cloud computing with telecommunications, in which companies such as DirecTV (NASDAQ: DTV), Rackspace Hosting (NYSE: RAX) and T-Mobile US (NYSE: TMUS) may be may gobbled up.
When the dust settles, Oppenheimer believes, AT&T, Comcast, Sprint and Verizon Communications are likely to have come out on top by acquiring as much in the way of broadband, data and content as possible. Other potential buyout candidates mentioned in the recent Oppenheimer research report include Level 3 Communications and TW Telecom.
Below we take a look at how DirecTV, Rackspace Hosting and T-Mobile US have fared and what analysts in general expect from them.
Satellite TV providers DirecTV and Dish Network reportedly have been talking about a possible merger. DirecTV sports a market capitalization of about $40 billion but does not offer a dividend. Its long-term earnings per share (EPS) growth forecast is less than 10 percent, and its return on equity is in the red.
The number of shares sold short in DirecTV has little changed in the two most recent reporting periods and is only marginally higher than at the end of last year. Short interest represented less than four percent of the float in mid-March. It would take more than four days to close out all short positions.
Half of the 26 analysts who follow the stock surveyed by Thomson/First Call recommend buying shares, with four of those rating the stock at Strong Buy. Their mean price target, or where the analysts think the share price will go, is less than the current share price, meaning they see no upside potential at this time.
At the time of this writing, shares are up about 14 percent year to date, as well as about 39 percent higher than a year ago. The stock has outperformed Comcast and the broader markets over the past six months, but it also narrowly underperformed rival Dish Network in that time.
The cloud computing and Web hosting company was recently upgraded by Morgan Stanley, which cited Rackspace's bookings momentum. The company has a market cap of more than $4 billion. The long-term EPS growth forecast is around 19 percent, but its price-to-earnings (P/E) ratio is greater than the industry average.
The short interest in Rackspace was more than 11 percent of the float in the most recent period, after the number of shares sold short saw a gain of five percent from the year-to-date low in the previous period. The days to cover jumped from less than four to about eight.
For at least three months, the consensus recommendation has been to hold Rackspace shares. A move to the analysts' mean price target would be a gain of more than 30 percent for shareholders. But note that the consensus target is well less than the 52-week high from back in early October.
Shares fell to a multiyear low last week, and the share price is down more than 15 percent from the beginning of the year and more than 33 percent from a year ago. Over the past six months, the stock not only underperformed the S&P 500, but competitors Amazon.com and AT&T as well.
T-Mobile will no longer offer BlackBerry phones after the latter company recently ended their licensing agreement. T-Mobile has a market cap of more than $26 billion. Note that its P/E ratio is much higher than the industry average, and its return on equity is less than one percent.
After decreasing by about 10 percent in early March, the number of T-Mobile shares sold short was about 10.3 million, or nearly four percent of the total number of shares available. It would take more than four days to close out all short positions, the same as at the previous settlement date.
Of the 22 analysts polled, 13 recommend buying shares and just one rates the stock at Underperform. The analysts see no headroom for shares as their mean price target is less than the current share price. Until individual price targets are raised, no upside potential is indicated.
The share price is about the same as it was at the beginning of the year, finally recovered from the sell-off in January. The share price is up more than 52 percent from a year ago. Over the past six months, the stock has outperformed AT&T and Verizon, as well as the broader markets.
At the time of this writing, the author had no position in the mentioned equities.
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