Inteliquent Inc. (NMS:IQNT) is the latest technology company that GeoInvesting has elected to follow, due to what appears to be a compelling case for the company to possibly close the valuation gap with its peers.  While we hold no position in IQNT, our change in the way we play this stock is largely contingent on information we gather after speaking with management, an interview we plan to set up in the coming days.

Inteliquent provides voice telecommunications services on a wholesale basis in the United States and internationally. The company offers its services using an all-IP network, which enables to deliver global connectivity for various media, including voice. It provides voice services comprising local transit, long distance, switched access, international voice, direct inward dialing, and toll-free services.

Our reasons for tracking the company include:

    • The valuation gap between IQNT vs. publicly traded comps, Cogent Communications Holdings (NMS:CCOI) & GTT Communications Inc. Common (NYSE:GTT), is large given the fact that IQNT uses considerably less leverage to operate its business. We are searching for additional comps.
    • IQNY Recently hit a new 52 week high of $23.20 on August 18, 2015, fueled by a 3 year contract agreement with T-Mobile.
    • Based on company guidance, it appears that the contract will provide a nice bump to the current quarterly revenue run rate of roughly mid $50 million ($120 million annually).
    • Even though in the short term the company will experience higher costs as it ramps up to provide service to new customers, we would expect the T-Mobile contract to eventually be accretive to IQNT’s bottom line.

Inteliquent 2015 Revenue Guidance Increased

We also like that the company raised revenue guidance but kept EBITDA guidance constant as it works through the above-mentioned costs.  Adjusted for agreements, revenue for 2015 is guided to be between $240 to $250 million vs prior estimated guidance of $220 to $230. Adjusted EBITDA is to remain the same as mentioned above, at $77 to $81 million. Although in the short-term  the company will experience higher costs as it ramps up to provide service to T-Mobile, we would expect EBITDA to eventually benefit from this agreement. We need to interview management to see how significant of a deal this contract is and the impact it can have on revenue and the bottom line once the initial set-up phase is over.

Long time GeoInvesting members may recall that IQNT sold one of its divisions (Tinet) to GTT back in April 2013.  The GTT acquisition was one of the main reasons we coded GTT a GeoBargain on July 31, 2013 at $4.30.   GTT ran from the low $4.00 level to near $13.00 for a 200% return during its tenure as a GeoBargain.  Shares continued to run, reaching a high of $25.66 or near 500% from our original coding price.

Readers can read our report on GTT to see why we like the industry that GTT and IQNT operate in.

Additional reasons of optimism include:

  • IQNT operates in an industry that exhibits recurring revenue stream characteristics.

  • Consistent profitability. Note that in recurring revenue models attaining consistent bottom line growth or consistent profitability are often as important as showing an ability to grow revenue.

Full Year

2016 Estimate

2015 Estimate

2014

2013

2012

2011

2010

Sales (millions)

$255.5

$232.7

$220.5

$211.6

$233.0

$224.6

$199.8

EPS

$1.23

$1.18

$1.15

$1.71

$0.75

$0.82

$0.97

EBITDA

$77 to $81 est.

$77 to $81 est.

$79.9

$69.9

tbd

tbd

tbd

Valuation Gap:

EV/EBITDA  and EV/Sales  compared to GTT and CCOI

IQNT

CCOI

GTT

EV/Sales

2.4

4.1

3.7

EV/EBITDA

6.3

13.1

19.8

Debt/Equity

0.0

26.1

3.0

An expansion IQNT’s valuation multiples may be in the cards if the T-Mobile agreement ends up providing a meaningful increase to the company’s revenue run rate.

In our interview we will try to determine the following:

  • Are there reasons to justify the company’s lower valuation on  EV/EBITDA and EV/Sales compared to its competitors?

  • What differentiates IQNT from GTT and CCOI?

We will be providing the results of our determinations to our Premium Members first.  Consider becoming among the first to receive Premium follow-ups to stories like this.