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ACC’s 1994 loss fails to cool analysts’ ardor

Analysts are going gaga over ACC Corp.’s galloping growth, despite the firm’s bruised bottom line in 1994 and a reined-in response from Wall Street.
“It’s just a matter of time (before the stock takes off),” said John Faessel, chief of market strategy and analysis for NSL & Co. Inc., a New York City brokerage.
The telecommunications firm also stands ripe for the picking, analysts note. Indeed, ACC stock is being buoyed by speculation of a buyout, said Thomas Combs of Brighton Securities Corp.
The company is attractive for several reasons.
Billable minutes are climbing; in 1994, they jumped 29 percent to 883 million. Faessel projects continued growth of at least 40 percent in 1995.
Revenues also are on the rise. ACC reported sales of $126.4 million for fiscal 1994 ended Dec. 31, up 19.3 percent from $106 million the previous year.
A strong international presence fueled much of that growth. Roughly 55 percent of ACC’s revenues flowed from ACC TelEnterprises Ltd., a Canadian long-distance reseller. ACC holds a 70 percent stake in that company.
Business also is booming in the United Kingdom, where the firm has established a low-cost pipeline to the United States through its subsidiary ACC Long Distance UK Ltd.
“That will be a real profit center for ACC,” Faessel said.
Furthermore, the company is laying groundwork to enter the French, German and Australian markets, and has signed a joint venture agreement with a major telecom company in Denmark.
Domestically, ACC owns 30 percent of U.S. One Communications Corp., a company formed last year to offer local telephone service in the Syracuse area. That venture is a sleeper, said Faessel, who has heard “unbelievable” projections of dollar volume for the business over the next few years.
And ACC continues to sign long-term contracts with universities across the county, as well as in Canada and the United Kingdom.
Start-up costs associated with ACC’s expansion hurt the bottom line, however. The company lost $11.3 million, or $1.60 a share, for the year, compared with earnings of $11.9 million, or $1.69 a share, in 1993.
Theodore Levy, vice president of research at Sage, Rutty & Co. Inc., observed that although ACC’s Canadian business bled $4.8 million in 1994, other long-distance resellers suffered even heavier losses. The company should see some relief this year, he added, as Canada’s regulatory agency eases access fees for resellers.
Combs of Brighton Securities said that ACC’s positive cash flow–some $15 million for 1994–shows that the company’s outlook is not as negative as its losses might indicate. He believes ACC will return to profitability within the next six months.
Analysts agreed that ACC will need to raise additional capital for further expansion, which thus far has been funded internally. The company might raise funds through a debenture or equity offering, Combs said, but not at its current stock price. ACC stock was trading midweek at $17.25 a share.
“I don’t think ACC management would let this go for less than $30,” Faessel said.
That figure is near the $28.50 one-for-one stock swap ACC was negotiating with LDDS Communications Inc. last spring. Falling stock prices blew apart a buyout by the Jackson, Miss., firm in May.
Analysts still think ACC is an appealing acquisition.
“They’re growing so fast, it’s almost a pure buyout situation,” Faessel said.
Possible suitors include LDDS and Time Warner Inc., Combs said. Time Warner, parent company of Greater Rochester Cablevision Inc., is gearing up to offer local phone service in Rochester.


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