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The Zacks Analyst Blog Highlights: MetroPCS Communications, Verizon Communications, AT&T, Sprint Nextel and Kennametal

Zacks Equity Research

For Immediate Release

Chicago, IL – May 3, 2013 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include MetroPCS Communications, Inc. (PCS), Verizon Communications Inc. (VZ), AT&T, Inc. (T), Sprint Nextel Corp. (S) and Kennametal Inc. (KMT).

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Here are highlights from Thursday’s Analyst Blog:

T-Mobile Closes MetroPCS Buy

T-Mobile USA has successfully completed the acquisition of MetroPCS Communications, Inc. (PCS).  MetroPCS has reportedly added 9 million customers to the existing 43 million of T-Mobile USA – a subsidiary of Deutsche Telekom AG and the fourth largest carrier in the U.S. preceded by Verizon Communications Inc. (VZ), AT&T, Inc. (T) and Sprint Nextel Corp. (S). The closure came close on the heels of the deal approval by MetroPCS shareholders. 

After facing constant pressure by shareholders to modify the deal terms, MetroPCS received the bid from T-Mobile to woo shareholders who stood against the merger. T-Mobile, in its final offer to MetroPCS, reduced the combined company’s debt burden by $3.8 billion to $11.2 billion and reduced the interest rate that added optimism to the deal’s closure. On Apr 24, the acquisition deal received its final approval from shareholders. Notably, the deal had previously cleared all regulatory approvals including the FCC nod. 

The new combined company will be listed on NYSE with the name of T-Mobile USA and the new ticker symbol – TMUS.  The company will be headquartered in Bellevue, Washington. The deal provides MetroPCS shareholders with a 26% stake in the company and cash consideration of 1.5 billion that translates into $4.06 per share.  Further, Deutsche Telekom provided an unsecured revolving credit facility of $500 million to the combined company. Deutsche Telekom will also facilitate the merged company’s operations with $5.5 billion backstop commitment for certain MetroPCS third-party financial dealings.

Further, the deal is expected to result in accelerated financial growth with estimated five-year CAGRs for revenues, EBITDA and free cash flow in the range of 3–5%, 7–10% and 15–20%, respectively. The deal would also add spectrum capacity and result in higher penetration of LTE networks that support speed up to 20x20 MHz of 4G LTE in several regions. Going forward, T-Mobile is reportedly planning to close down MetroPCS' network over a period of two years and utilize the airwaves to build and expand its own network capabilities.

 MetroPCS currently has a Zacks Rank #4 (Sell rating).

Kennametal Drops to Strong Sell

Zacks Investment Research downgraded Kennametal Inc. (KMT) to a Zacks Rank #5 (Strong sell) on May 1, 2013.

Why the Downgrade?

Kennametal reported disappointing results for the fiscal third quarter 2013 (ended Mar 31) on Apr 25, 2013. The company’s earnings per share in the quarter came in at 65 cents, 33.7% below the year-ago reported earnings and 8.5% below the Zacks Consensus Estimate of 71 cents.

Revenue plummeted 5.9% year over year as it was adversely affected by a fall of 6% in organic revenue, a 5% impact from fewer working days in the quarter and 1% negative impact from foreign currency translation. These were, however, partially offset to the tune of 6% due to two months’ revenue contribution from Stellite.

Talking of costs and margins, cost of revenue represented 68.2% of total revenue in the quarter; up from 64.6% in the year-ago quarter while operating expenses stood at 19.6%. Adjusted operating margin was down 390 basis points year over year to 12.1% in the quarter.

Results for the fiscal third quarter as well as prevailing weakness in the company’s industrial end markets as well as in-road construction, underground mining, and oil and gas markets in the U.S. forced management of Kennametal to revise down its guidance for 2013.

It is anticipated that sales would now decline to the range of 5%-6% as against a drop ranging from 2%-4% expected earlier while organic revenue is predicted to decline within the 8%-9% range versus 7%-9% expected earlier. Earnings per share are now likely to fall within the $2.45-$2.55 range, below the $2.60-$2.80 range projected earlier.

Disappointing results in the quarter combined with a gloomy operating environment and lowered management guidance led to a downward revision in earnings estimate for Kennametal in the last 7 days. The Zacks Consensus Estimate for fiscal 2013 has gone down by 5.6% to $2.51 while for 2014, the estimate plummeted 4.6% to $3.32.

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