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PanAmSat revises EPS
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March 29, 2000: 9:27 a.m. ET
Satellite firm's shares fall on EPS changes; Web network launched
By Staff Writer Michele Masterson
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NEW YORK (CNNfn) - Shares of satellite communications provider PanAmSat Corp. skidded Wednesday after the company warned analysts that 2001 profit would be lower than expected.
Shares of PanAmSat sank 11-1/4, or 18 percent, to 51 in afternoon trading.
According to analysts, the Street embraced news that PanAmSat is launching an Internet network. But in a morning conference call with analysts, the company sharply revised its earning per share outlook for 2001. Wall Street estimates were at $1.50, but the company advised that the number was closer to 85 cents for its core business.
"The changes spooked a lot of people on the call, when analysts were trying to figure out why the changes were made and the changes should have already been in our estimates," Lehman Bros. analyst Robert Peck said. "I am concerned that management had guided us previously so far away from where they guided us now."
 "I think the market's already corrected for the downplay in EPS," Peck said.
"I am not changing my rating on the stock ("one/buy," price target $72) because I like the Internet announcement," Peck said. Where the changes in estimates are coming from is below the line of depreciation and amortization and interest expense. It's all below-the-line stuff; they're still going to hit their revenue and EBITDA, and to me, that's the driver of the business."
"I had the lowest earnings per share on the Street, $1.00, so they're going to have about 15 cents higher depreciation and amortization," said Credit Suisse First Boston analyst Ty Carmichael. "But relative to my peers, the EPS estimates that ranged anywhere from $1.30 to $2.38. I'm not sure where they went wrong in their analysis, but obviously, they were way off."
"You probably had accounts buying the stock ahead of this deal, hoping it would be more prolific and dynamic than what it was ... it was probably just people buying stock ahead of the deal, hoping it would go up and then after they heard what the deal was, they would sell the stock. They probably would have sold the stock regardless of whether the deal was good or bad," Carmichael said.
Calls to PanAmSat were not returned.
On Wednesday, the company unveiled its high-speed Internet network, the NET/36. The system will broadcast Internet video, audio and data simultaneously to online users. It is aimed at providing high-speed, bandwidth intensive, Internet media content via satellite to firms offering digital subscriber line technology (DSL), Internet service providers (ISPs), and broadband wireless providers internationally.
PanAmSat partners include U S WEST (USW: Research, Estimates), which will use NET/36 for Internet content delivery, file transfer and caching to its DSL and Internet subscribers.
NET/36 will use RealSystem G2 technology from Web streaming media provider RealNetworks (RNWK: Research, Estimates) to provide the distribution architecture for video and audio programming delivery.
"We like the deal," said Peck at Lehman Bros. "It's what we have been predicting the company would do over the last month. It's going to help them expand their offerings and actually fill unused capacity."
"I think PanAmSat is partnering with two world-class partners that are well-respected in their fields. I think investors will react well to that," Peck added.
"I think this is a good first step for the company as they try to capitalize on the opportunity that they have in the Internet arena," CSFB's Carmichael said.
Separately, PanAmSat said it signed a service agreement with Hughes Network Systems, which will use 10 PanAmSat satellites as the delivery platform for AOL Plus via DirecPC, which will provide high-speed delivery of America Online's (AOL: Research, Estimates) broadband content to users later this year.
The deal expands a 1999 alliance between Hughes Electronics Corp. and AOL, in which the companies agreed to jointly market several services,
including AOL Plus via DirecPC. Hughes Electronics is a unit of General Motors Corp. (GMH: Research, Estimates); Hughes owns 81 percent of PanAmSat.
The network will tap into PanAmSat's fleet of in-orbit satellites, which includes 20 spacecraft stationed 22,000 miles above Earth. PanAmSat will invest $250 million in capital and operating expenses over the next two years to deploy NET/36, and said NET/36 does not require significant
new investment to build additional orbital assets.
"I think this is going to be a large revenue opportunity for PanAmSat," said Lehman's Peck. "We think the growth of the Internet is going to be the future for satellite services and we like to see them expanding into it to get a piece of that pie."
"To have these partners jump into the deal substantiates that there is a market opportunity for satellite operators, and I would look forward to more partnering with satellite firms," Peck said.
"(The deal) brings to the forefront the value that satellites will have in the Internet world, as a means of bringing content to the edge of the network and improving speeds so that users can receive more robust applications," CSFB's Carmichael said.
Other satellite companies venturing into the Internet arena include Loral's (LOR: Research, Estimates) CyberStar subsidiary, and Cidera (CIDR: Research, Estimates), a Laurel, Md., company that recently filed a public offering. 
-- Click here to send e-mail to Michele Masterson
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