Do the names John Kluge or Metromedia Fiber Network Inc. ring any bells? Unless you are knee-deep in the telecom industry, probably not. John Kluge is America's 32nd richest man, worth approximately $9 billion. He made his first real fortune in the mid-1980s when he sold his Metromedia network of independent television stations to Rupert Murdoch for $2 billion. These stations would become an important part of Murdoch's Fox Network.

With cash in hand, Kluge went to work investing the proceeds in many industries, one of which was the fiber optic business, creating Metromedia Fiber Network Inc. Enter AboveNet Inc. (NYSE:ABVT) in September 1999 when it merged with Metromedia Fiber. Unfortunately, the good times wouldn't last and the company entered bankruptcy protection in May 2002. Here's why you should consider Above Net stock.

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Lean And Mean
AboveNet emerged from bankruptcy protection in September 2003 with $80 million in cash and very little debt. It was a much smaller company than the one that listed $5.35 billion in debt in its bankruptcy filing 15 months earlier. Its 2004 revenues were $189.3 million with an operating loss of $35.4 million and total assets of $400 million, a far cry from its heyday earlier in the decade. It appears that AboveNet as well as fiber optic pure-plays TW Telecom (Nasdaq:TWTC) and FiberNet Telecom Group (Nasdaq:FTGX) were all victims of the dotcom bubble. Fortunately for Kluge and others, this story has a happy ending.

NYSE Listing
AboveNet stock began trading May 12 on the New York Stock Exchange. It did so with steady growth in revenues and an impressive return to profitability. Although it lost money in 2004, at the end of 2008 it was generating operating profits of $55.1 million on revenues of $320 million. Further, it had grown shareholder equity 66% in just four years and held $87.1 million in cash to just $34.3 million in long-term debt. This is a company completely transformed and yet only two analysts cover its stock.

If the results from 2008 aren't interesting enough, consider its second-quarter earnings report for the period ended June 30, 2009 in which it made $23.3 million in operating income from $88 million in revenues. Its operating margins jumped 1070 basis points from 15.8% to 26.5% year over year. If you need more ammunition, consider that shareholder equity increased 9.7% from the first quarter of 2009 and 21.5% year over year. By every standard, this is one healthy company.

AboveNet and Competitors




Company


Market Cap


Operating Margin (TTM)


P/S (TTM)


AboveNet (NYSE: ABVT)


$1.05B


24.04%


3.14


TW Telecom (Nasdaq: TWTC)


$1.56B


8.29%


1.33


FiberNet Telecom Group (Nasdaq:FTGX)


$87.33M


0.39%


1.45


Level 3 Communications (Nasdaq:LVLT)


$2.00B


2.75%


0.50


Verizon (NYSE:VZ)


$87.72B


18.49%


0.85



The Bottom Line
AboveNet's stock will split 2-for-1 on August 21. Normally I don't pay attention to this kind of thing because it doesn't change the fundamentals of the business but in this instance, I think it's important to recognize the significance of the split itself rather than the result of it. Only a few short years ago, you had a debt-laden mess. Today, you have a business that is driving revenue growth, increasing margins and profitability and generally creating a cash flow machine. It's almost impossible to fathom that this existing company is the result of the bankrupt one from 2002. It's like night and day and if you do your homework, you'll agree 100% with my analysis. (To learn more, check out What Is The History Behind Today's Bankruptcy Laws?)

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Tickers in this Article: ABVT, TWTC, FTGX, LVLT, VZ

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