Glo Fiber Expansion And Broadband Upgrades Will Unlock Market Potential

Key Takeaways

• Rapid Glo Fiber market expansion and improved broadband subscriber penetration are key drivers of future revenue and cash flow growth.
  
• Strategic capital restructuring and reduced capital intensity promise lower costs and enhanced free cash flow starting in the coming years.
  
• Potential execution risks of refinancing credit facilities could affect near-term earnings, while increased capital expenditures could delay free cash flow generation.

Catalysts

Provides broadband services and video and voice services in the United States.

• The Glo Fiber Expansion Markets are experiencing rapid subscriber growth and are expected to significantly contribute to future revenue growth and free cash flow margins as the penetration rate approaches 37%, highlighting an underappreciated aspect of the business.
  
• Improvements in the Incumbent broadband business, driven by reduced churn and increased subscriber penetration in newly constructed areas, are expected to enhance revenue and free cash flow despite elevated capital expenditures.
  
• Record commercial sales bookings suggest potential for accelerating future revenue growth as service delivery and quality improve, indicating an expectation of increased revenue generation.
  
• Plans to restructure the capital via accessing the asset-backed securitization (ABS) market and potentially reducing interest expenses by 100 basis points could lower costs and improve net margins in the future.
  
• The completion of the Glo Fiber expansion and government grant projects by 2026, culminating in reduced capital intensity, is expected to generate significant free cash flow starting 2027, potentially impacting earnings positively.

Shenandoah Telecommunications Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Shenandoah Telecommunications's revenue will grow by 9.3% annually over the next 3 years.
• Analysts are not forecasting that Shenandoah Telecommunications will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate Shenandoah Telecommunications's profit margin will increase from -9.7% to the average US Telecom industry of 12.9% in 3 years.
• If Shenandoah Telecommunications's profit margin were to converge on the industry average, you could expect earnings to reach $55.3 million (and earnings per share of $1.01) by about May 2028, up from $-31.8 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 31.0x on those 2028 earnings, up from -22.5x today. This future PE is greater than the current PE for the US Telecom industry at 13.0x.
• Analysts expect the number of shares outstanding to grow by 0.23% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.21%, as per the Simply Wall St company report.

Shenandoah Telecommunications Future Earnings Per Share Growth

Risks

• The decline in Incumbent broadband markets revenue, primarily due to a 14% decline in video RGUs as customers switch to streamed video services, could negatively impact overall revenue growth.
  
• The construction phase of Glo Fiber builds and government grant projects involves elevated capital expenditures, which could impact net margins and delay substantial free cash flow generation until after 2026.
  
• The planned refinancing and restructuring of credit facilities, including entering the asset-backed securitization market, while intended to reduce interest expenses, involve execution risk and could affect near-term earnings if not managed effectively.
  
• Potential tariffs and price increases on electronic equipment, particularly customer premises equipment manufactured overseas, may increase costs, impacting net margins if equipment rental fees cannot be adjusted to offset these costs.
  
• Competitive pressures, particularly from Brightspeed, in small overlapping markets could affect Glo Fiber's subscriber growth and penetration rates, impacting future revenue and profitability.

Valuation

• The analysts have a consensus price target of $26.0 for Shenandoah Telecommunications based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $428.6 million, earnings will come to $55.3 million, and it would be trading on a PE ratio of 31.0x, assuming you use a discount rate of 6.2%.
  
• Given the current share price of $13.02, the analyst price target of $26.0 is 49.9% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.