Cincinnati Bell Inc. (CBB) Stock Analysis

In this morning’s earnings report Cincinnati Bell announced EBITDA of $372 million in 2018 and an expectation of $400 million EBITDA in 2019. Not only do I believe that $400 mil in EBITDA in 2019 is attainable but I also think this could be a quite conservative expectation. 2018 EBITDA increased by $90 million from the 2017 values. In the 4th quarter alone CBB generated $108 million in EBITDA. Obviously, if this is extrapolated over 4 quarters this is well over the target EBITDA of $400 million.

In 2019, I expect these 4th quarter results to be repeated throughout the year as we will get to see a full year with Hawaiian Telcom being a part of CBB. Hawaiian Telcom generated $175 million in revenue in just 6 months. The IT Services and Hardware segment of Cincinnati Bell saw an uptick in revenue of $22 million in Q4 and a year-over-year increase of $166 million. This is increase was in large part due to the acquistions of Hawaiian Telcom and OnX that were made earlier in 2018. The annual net income was hurt by transaction and integration costs as well as increased interest expense stemming from the acquisition of Hawaiian Telcom and OnX. These expenses will be significantly lower next year and we will be able to see a much greater chunk of the increased EBITDA value going into net income.

As for a multiple, I calculated an EV/EBITDA multiple of 6.68 which is below the industry average of 8.5. I expect this multiple to become even more attractive following 2019 when I anticipate an annual EBITDA of over $400 million.

This stock appears to be moving in the right direction in terms of EBITDA and Revenue. Now that the integration costs of past mergers and acquisitions are behind them I expect expenses to decrease moving forward. I see this stock as a buy (especially after today’s earnings miss which leads to a more attractive value) as long as they don’t make another acquisition in 2019. I like their core set of companies right now and I would like to see CBB focus on expanding revenue across the different branches of the company and lowering costs.

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