QUOTE AND NEWS
TechCrunch  Dec 3  Comment 
 The idea of creating robots that can understand, compute and respond to human emotions has been explored in movies for decades. However, a common misconception is that the challenge of creating emotionally intelligent computing systems is too...
Automotive World  Nov 25  Comment 
The new EQ range shouldn't prove a threat to Smart, but it will change its significance to the Mercedes-Benz Cars group, writes Megan Lampinen The post Smart no longer the CO2 saviour as Mercedes enters the EQ era appeared first on Automotive...
Insurance Journal  Nov 18  Comment 
Catastrophe modeling firm AIR Worldwide released its initial estimates of industry insured losses from the earthquake that struck New Zealand’s South Island early this week, putting a range of $762 million to $3.5 billion out for the event...
Forbes  Nov 13  Comment 
Higher emotional intelligence means greater income and better job performance. Here's how leaders can raise EQ in four simple steps.
MarketWatch  Oct 3  Comment 
Mercedes-Benz took the wraps off the Generation EQ concept at the Paris auto show, previewing a new brand of electric vehicles.
Automotive World  Sep 30  Comment 
With “Generation EQ”, Mercedes-Benz shows how electric cars can soon move into the fast lane: the concept vehicle, with the appearance of a sporty SUV coupé, gives a preview of a new generation of vehicles with battery-electric drives. The...
TechCrunch  Sep 29  Comment 
 Mercedes-Benz is trying to play with your emotions with its new electric vehicle concept, debuted at the Paris Motor Show today. The “Generation EQ” it unveiled is a sporty SUV design, which is reminiscent of the Tesla Model X in its lines...
Automotive World  Sep 29  Comment 
At the Paris Motor Show, Mercedes-Benz will unveil its new product brand for electric mobility: EQ. The name EQ stands for “Electric Intelligence” and is derived from the Mercedes-Benz brand values of “Emotion and Intelligence”. The new...
Clusterstock  Sep 27  Comment 
Over his 40-year banking career, James Runde learned that being just as smart and hardworking as his colleagues wasn't enough. Instead, developing emotional intelligence, or "EQ," is key to getting ahead on Wall Street, Runde wrote in an article...
Automotive World  Mar 8  Comment 
Less is more For reliable micro-electronics in sensitive automotive applications such as control units and sensors, BASF has now developed a portfolio of various polyamide 6 and 66 grades that help prevent damage to circuits by electric corrosion....




 
TOP CONTRIBUTORS

Embarq (NYSE: EQ) emerged following the spin-off of Sprint's Local Telephone business that became effective on May 17, 2006. Investors who held Sprint Nextel common stock on May 8, 2006, received one share of EQ stock for every 20 shares of Sprint Nextel common stock they owned. Until then, EQ was a wholly-owned subsidiary of Sprint Nextel. EQ's assets and business now consist largely of those that comprised Sprint Nextel's former Local Telecommunications Division and Sprint North Supply operations. EQ, headquartered in Overland Park, Kansas, is now the fourth largest local communications company in the United States, (based on access lines) and provides services in 18 states which include many major metropolitan areas and rural markets. The customer base, market reach, competitors, network infrastructure and economics of the business vary widely among geographies. The total access lines are split even by between metropolitan and rural markets.

EQ reports its operating results in two segments Telecommunications (92% of 2006 revenues) and Logistics (8%). The Telecommunications segment provides regulated local communications services as an incumbent local exchange carrier, or ILEC, to approximately 5% of U.S. households, with approximately 6.9 million access lines as of December 31, 2006. Florida, North Carolina, Nevada, and Ohio territories represent approximately 66% of EQ's access lines. This segment provides local voice and data, high-speed Internet, nationwide long distance, wireless, satellite video and other services to customers within EQ's local service territories. Additionally, the company also provides access to Embarq's local network and other wholesale communication services for other carriers. The company offers wireless services to large and medium customers through a mobile virtual network operator (MVNO) arrangement with Sprint Nextel. The Logistics segment engages in procuring, configuring, and distributing equipment, materials, and supplies to the communications industry. This segment offers outside plant business communication systems, telephones and accessories, and network access equipment from manufacturers.

INVESTMENT THESIS

Erosion in access lines persists as the company continues to face stiff competition from wireless operators and cable companies with recent triple-play (voice, video, and data) offering to the consumer. Switched access lines declined 6.1% in 2006 and the percentage of access line losses will accelerate in 2007 as cable companies offering Voice over Internet Protocol (VoIP) services continue to add coverage in the company's territories. The challenge for the company will be to retain its subscriber level and grow revenue with new services and expansion of its geographical reach. One initiative that will attempt to offset existing service challenges is the delivery of new video services to compete against cable operators offering voice service in its local markets. However, EQ will face a difficult deployment process as municipality approval is required in each intended local jurisdiction before offering video to subscribers. Similar regulatory hurdles have already hindered other telephone companies, including Verizon and AT&T, deploying video broadcast services.

In June 2006, the company also started offering wireless services. However, EQ's wireless operation is leveraged from Sprint Nextel, and not organically owned by the company, which may limit overall financial return on its third party services. EQ plans to integrate its wireline voice and data services with the wireless service in order to complement and enhance the value of its core offerings. We believe that the non-exclusive wireless wholesale arrangement with Sprint Nextel will facilitate improved bundled services and more attractive pricing to customers. Unfortunately, Sprint Nextel is also consummating similar arrangements with competitors, including cable operators, so the outcome may not be as significant moving forward.

Although the divestiture of Sprint Nextel's local telephone business (EQ) unlocked value for Sprint shareholders and the company's aggressive dividend policy (the $2.50 dividend payout equates to a 5.0% yield) will entice investors to hold shares, much of the burden is now placed on EQ in terms of financial debt and the need to turn a mature operating business into one that becomes more robust. The highly leveraged balanced sheet is an issue that should be considered as the company had $5.87 billion of total long term debt and only $10 million of cash and equivalents as of September 30, 2007.

Earlier in the year, management's outlook for 2007 guided us to lower revenue and earnings levels than previously forecasted. The company estimated that year-over-year access lines will decline at a mid to upper 6% rate due to increasing competition from cable and wireless providers. Revenues are expected to grow modestly while operating income is estimated to decline. Management expects that the launch of its wireless service in 2006 will be dilutive to financial results in 2007 as a result of up-front customer acquisition costs as well as the absence of a substantial customer base generating a level of recurring revenue sufficient to cover these initial investments.

As a result of these challenges, we believe EQ's cash generation and earnings power will be offset by the company's limited growth prospects and the regulatory challenges, which we believe are negative factors that may impede higher valuations.




References

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