The analysts at Oppenheimer are making a single huge statement in a new research report. They see more technological change occurring in the next three years than at any point since the late 1990s. Specifically, they see the convergence of communications and computing to a single mobile cloud industry with four primary full-service competitors. Those big four could be making some huge moves to grab the broadband, data and content crown down the road.
They point to AT&T Inc. (NYSE: T), Comcast Corp. (NASDAQ: CMCSA), Sprint Corp. (NYSE: S) and Verizon Communications Inc. (NYSE: VZ) as the communications final four when all the dust settles. They present a list of six names that may very likely be acquired by one of these four giants over the next three to five years.
Dish Network Corp. (NASDAQ: DISH) announced a large new deal with Walt Disney, joining to form a multiyear distribution deal. In addition, they have reached out over consolidation in the satellite industry. The Thomson/First Call price target for the stock is $58.35. Dish closed way above that at $63.90 Tuesday.
DirecTV (NASDAQ: DTV) was approached by Dish Network CEO Charles Ergen to initiate talks about a merger, according to the Wall Street chatter. While many think that regulators would recoil at the lack of competition in the space if a merger occurred, satellite TV always faces a battle with cable and the carriers. One big question we have addressed ourselves is simply whether a DirecTV-Dish merger would be considered a monopoly. The consensus price target for DirecTV is $77.35, and the stock closed just above that Tuesday at $77.72.
Level 3 Communications Inc. (NYSE: LVLT) provides core network services, including transport services comprising wavelengths, private lines, transoceanic services and dark fiber, as well as related professional services. It also provides collocation and data center services, such as cloud, hosting and application management solutions. All the solutions a huge communications provider may want to have and own. The consensus price target is $38. Level 3 closed Tuesday at $40.75.
Rackspace Hosting Inc. (NYSE: RAX) is another company that can provide the infrastructure play to the big boys. Plus, the stock has taken a beating over the past year and may be getting to a price point at which it becomes even more attractive. The consensus price target is $45.79. Rackspace closed Tuesday at $32.29.
T-Mobile US Inc. (NYSE: TMUS) is considered the crown jewel of all the potential acquisition targets. It could add all the communication heavy lifting to a company like Comcast that has everything else in place. This is a scenario that Oppenheimer believes could happen by next year. The consensus price target is $32.58. T-Mobile closed Tuesday at $33.48.
TW Telecom Inc. (NASDAQ: TWTC) is a lesser known name that could also be in the sights of one of the top players. The company is a leading national provider of managed services, including business Ethernet, converged and IP virtual private network (VPN) solutions for enterprises throughout the United States and globally. It also delivers secure, scalable private connections for transport data networking, Internet access, voice, VPN, Voice over Internet Protocol (VoIP) and security to large organizations and communications services companies. The consensus price target is $30.82. The stock finished trading Tuesday at $31.90 a share.
The Oppenheimer contention is that this is not a case of if, but when. Their thesis makes extremely good sense. With a technology revolution in full swing and a mobile computing explosion just starting, imagine the demands and the profits that can be made by the companies that have diversified to include all the components for success. Acquisitions may be an integral part of the growth, and the targets sure seem to be there.