Uniti Earnings: Underwhelming Results Don’t Change Our Long-Term View
Uniti UNIT missed FactSet consensus revenue and EBITDA estimates and said activity from some of its customers has slowed. The stock sold off 10% in response, but we think that’s an overreaction to surface-level optics. We are not changing our forecast or $12 fair value estimate. We think the biggest reason for the undervaluation is fear about the firm’s debt level and corporate structure, but we don’t expect Uniti to face financial pressures that force it to make unattractive decisions.
Total revenue was roughly flat year over year, while $3 million in adjusted EBITDA growth was due to roughly a percentage point of margin expansion. With $750 million of annualized revenue booked in the quarter while churn remained at 2%, we think the firm remains on track to add leases to its fiber. Management said that it has seen some customers delaying decisions in the current economic environment, and bookings from wireless carriers are down significantly this year. However, the firm still anticipates 5% growth in monthly recurring revenue, and the slowdown in carrier spending has been well known. Uniti maintained its full-year guidance.
Management addressed the lead cables that are an issue for all wireline telecom firms in the U.S. Uniti’s exposure is exclusively through the legacy Windstream network that it acquired in 2015. The firm’s initial analysis estimated that less than 1% of its copper route miles contain lead. We think the most likely financial ramifications from the lead issue would be in the cost of remediation, since there have been no allegations of malfeasance by telecom firms or any deviation from the best practices of the 1960s, by which time these cables were generally deployed. Considering the low exposure Uniti says it has, we don’t think remediation would be overly burdensome. With the firm’s debt position, however, it would not likely be able to withstand a big civil judgment against it, an outcome we think is very unlikely.
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