10-31-2017: Shenandoah Telecommunications Company (SHEN): Diversified, but Mainly Wireless

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Recommendation

Shenandoah Telecommunications Company

Cable companies, despite their apparent monopoly in some areas on fast internet service and television channels, have been raising rates and having a hard time as an industry group. Most get their best results from offering cellular phone service as a product unrelated to the "bundles" being offered. Shenandoah Telecommunications Co. (SHEN) is one of these which serves parts of the Alleghany Mountain rural areas of West Virginia and surrounding states which suffer from poorer economic conditions.

The company appears to us to well managed, with good corporate governance, and it has been around a long time. Unlike one of its competitors, Verizon, which sold off portions of its cable operations to concentrate upon wireless, Shenandoah still offers all those services and as a telephone company in some form has been around since the turn of the last century.

Its problem has been erratic earnings, and a string of recent losses, although projected earnings suggest a turnaround in the offing. This gives it some poor financial ratios, and unacceptably low Zenith Index, yet the company has good financial reporting and accounting standards by several review parameters.

Institutions are buying into the impending turnaround and Dimensional Fund Advisors is among them (a good sign for us) but analysts and researchers are biased slightly to negative on this stock. It is supported by a string of technical chart prediction systems and has very positive overall sentiment. The CEO Letter to Shareholders is way old and stopped being issued after 2014. That is a trend with many companies to rely upon conference calls, but not a thing we like to see especially from well-estbablished management. The company has a strong investor presentation.

There have been some class action lawsuits regarding management's projections and acquisitions. The company is heavily in debt.

The stock appears to be more of a buy and hold stock than a trading range stock due to increasing prospects for earnings improvement.

The bulk of this company's revenues are coming from wireless operations, not wireline (land lines) or cable. It has a lot of partnership arrangements with Sprint. It faces a number of environmental and other issues for things like cel tower locations, privacy and security of data systems, and utility regulatory factors. Because of some of these factors it has been less able to shed its less profitable operations to concentrate upon wireless as Verizon has done in several large st ates. Through acquisitioins it has become the sixth largest wireless carrier in the nation, and this is clearly where most of its future prespects seem to lie.. Those people running around with their heads stuck in smart phones all the time are the white hope of most telecommunications companies.



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Zenith Index

Under current market conditions, a Zenith Index Score of 1.20 or above is required for a positive rating on this factor. 1.21 -1.30 is considered acceptable, 1.30-1.40 is considered strong and
> 1.40 is considered exceptionally strong. Accounting statements in this section often contain mistakes, especially in earlier years' totals, but data is deemed sufficient for us to give a rating. More accurate financial statements follow in the next section.

Shenandoah Telecommunications Company (SHEN)              Exchange: Nasdaq
500 Shentel Way
P.O. Box 459                     Sector: Technology
Edinburg, VA 22824               Industry:Telecom Services - Domestic

Shenandoah Telecommunications Company, through its subsidiaries,
provides regulated and unregulated telecommunications services to
end-user customers and other telecommunications providers in Virginia,
West Virginia, central Pennsylvania, western Maryland, and portions of
Kentucky and Ohio. It offers a suite of voice, video, and data
communications services. The company operates in three segments:
Wireless, Cable, and Wireline. The Wireless segment provides digital
wireless services; and wireless mobility communications network products
and services. As of December 31, 2016, it owned 196 cell site towers
built on leased land; leased space on 170 towers; and had 202 leases
with other wireless communications providers. The Cable segment offers
video, Internet, and voice services in Virginia, West Virginia, and
western Maryland; and leases fiber optic facilities. The Wireline
segment provides regulated and unregulated voice services, DSL Internet
access, and long distance access services in Shenandoah County, as well
as portions of Rockingham, Frederick, Warren, and Augusta counties in
Virginia; video services in portions of Shenandoah County; and leases
fiber optic facilities throughout the northern Shenandoah Valley of
Virginia, northern Virginia, and adjacent areas along the Interstate 81
corridor. The company offers its products and services under the Sprint
and Shentel brands. Shenandoah Telecommunications Company was founded in
1902 and is headquartered in Edinburg, Virginia.

Last Trade:  39.75                           52-Week Range:  41.80 -  22.05
Employees: 1,187                             Avg.Volume:     209,579 Shares

Corporate Governance:
Pillar scores are Audit: 10; Board: 5; Shareholder Rights: 6; Compensation: 3.
         (A lower number means less governance risk.)

EPS: -0.11    Dividend Amount: $%203.00          Yield:  0.65%
             Ex-Dividend Date: Nov 2, 2016     Payout Ratio:   0.00

Key Statistics:

    Trailing P/E: %-353.98              Forward P/E (est.):  81.63
                                           Target Price:  42.50

Qrtly Stock Price Growth (yoy):  50.57%               Beta:   0.14
Qrtly S&P Index   Growth (yoy):  17.60%        Short Ratio:  16.90%
    Qrtly Revenue Growth (yoy):  20.42%         Shares Out:  49130000
   Qrtly Earnings Growth (yoy):   0.00%

          Book Value:   6.08                    Debt/Equity: 282.60%
    Price/Book Value:   6.58        Operating Profit Margin:  11.43%
         Price/Sales:   3.17                  Profit Margin:  -0.89%
         Market Cap:   1,965,000,000       Return on Equity:  -1.83%
    Enterprise Value:   2,750,000,000      Return on Assets:   3.05%

    Operating Cash Flow:    197,930,000
         Free Cash Flow:     21,070,000



Annual Income Statement:                          (All numbers in thousands)
  Period Ending                             12/31/2016  12/31/2015  12/31/2014

  Total Revenue                                535,288     342,485     326,946
  Cost of Revenue                              193,520     121,330     129,743
  Gross Profit                                 341,768     221,155     197,203

Operating Expenses:
  Research & Development                             0           0           0
  Selling, General & Administrative            133,325      72,821      69,370
  Non-Recurring Expenses                        42,232       3,546       3,546
  Other Operating Expenses                     143,685      70,702      65,890
  Total Operating Expenses                           0           0           0

Operating Income or Loss                        22,526      74,086      61,943

Income from Continuing Operations:
  Total Other Income/Expenses Net                4,521       1,859       2,239
  Earnings Before Interest & Taxes              27,047      75,945      64,182
  Interest Expense                              25,102       7,355       8,148
  Income Before Taxes                            1,945      68,590      56,034
  Income Tax Expense                             2,840      27,726      22,151
  Minority Interest                                  0           0           0

Net Income from Continuing Op.s                   -895      40,864      33,883

Non-recurring Events:
  Discontinued Operations                            0           0           0
  Extraordinary Items                                0           0           0
  Effect of Accounting Changes                       0           0           0
  Other Items                                        0           0           0
  Net Income                                      -895      40,864      33,883
  Preferred Stock & Other Adjustments                0           0           0

Net Income Avail to Common Shares                 -895      40,864      33,883




Annual Cash Flow Statement:                   (All numbers in thousands)
  Period Ending                         12/31/2016    12/31/2015    12/31/2014

  Net Income                                  -895        40,864        33,883

Operating Activities:
  Depreciation                             162,357        71,269        66,495
  Adjustments to Net Income                -40,752         2,527         9,571
  Changes in Accounts Recv'bls              14,581        -1,047        -6,225
  Changes in Liabilities                    42,931         2,753         5,040
  Changes in Investories                   -30,288           492         1,921
  Changes in other Oper'g Acts              13,592         2,463         4,308

Total Cash Flow f Operations               161,526       119,321       114,993

Investing Activities:
  Capital Exenditures                     -173,231       -69,679       -68,232
  Investments                                2,895            54            43
  Other Cash Flows fr Investing           -649,677           363           551

Total Cash Flows from Investing           -820,013       -69,262       -67,638

Financing Activities:
  Dividends Paid                           -11,705       -11,085       -10,761
  Sale of Purchase of Stock                 -1,724          -878          -638
  Net Borrowings                           646,207       -23,000        -5,750
  Other Cash Flows fr Financing                  0             0           551

Total Cash Flows from Financing            617,868       -42,164       -16,754

  Effect of Exchange Rate Chg                    0             0             0

Change in Cash & Cash Equiv.               -40,619         7,895        30,601

Annual Balance Sheets:                              (All Numbers in Thousands)
  Period Ending                          12/31/2016    12/31/2015    12/31/2014
Current Assets:
  Cash & Cash Equivalents                    36,193        76,812        68,917
  Short Term Investments                          0             0             0
  Net Receivables                            69,789        38,379        46,334
  Inventory                                  39,043         4,183         8,794
  Other Current Assets                       16,440         8,573         4,279
  Total Current Assets                      161,465       127,947       128,324

  Long-Term Investments                      10,276        10,679        10,089
  Property, Plant & Equipt                  698,122       410,018       405,907
  Goodwill                                  145,256            10             0
  Intangible Assets                         454,532        66,993        68,260
  Accumulated Amortization                        0             0             0
  Other Assets                                    0             0             0
  Deferred LT Asset Charges                  14,756        11,504         6,662

Total Assets                              1,484,407       627,151       619,242

Current Liabilities:
  Accounts Payable                          132,222        38,237        36,154
  Current Portion LT Debt                    32,041        22,492        23,000
  Other Current Liabilities                       0             0             0
  Total Current Liabilities                 164,263        60,729         59,154

  Long Term Debt                            132,222        38,237        36,154
  Other Liabilities                          32,041        22,492        23,000
  Deferred LT Liab. Charges                       0             0             0
  Minority Interest                               0             0             0
  Negative Goodwill                               0             0             0

Total Liabilities                         1,101,644       254,203       360,896

Stockholder Equity:
  Misc. Options, Warrants                         0             0             0
  Redeemable Preferred Stock                      0             0             0
  Preferred Stock                                 0             0             0
  Common Stock                               45,482        32,776        29,712
  Retained Earnings                         243,624       256,747       227,512
  Treasury Stock                                  0             0             0
  Capital Surplus                                 0             0             0
  Other Stockhohlder Equity                   6,788           415         1,122
  Total Stockholder Equity                  295,894       289,938       258,346

Net Tangible Assets                        -303,894       222,935       190,086


Shenandoah Telecommunications Company (SHEN [Indices near +3.0, near zero,
                                            or < zero bear special attention.]
P/E Ratio Tests:
P/E Ratio < 28?           -0.0791          P/E Ratio > 5?             0.0000
P/E Ratio Vs Growth Rate:  0.0000          Forward P/E Ratio < 28?    0.3430
Price/Sales Ratio < 2.3?   0.7256          Inventory/Sales < 5%?      0.6855
Sales < $1 Billion?        1.8682          Operating Margin < 7.5%?   0.6562

Balance Sheet Tests:
Debt/Equity < 0.40?        0.1415          Long-Term Debt Service:    0.4801
LTD Being Reduced?        -3.0000          Short-Term Debt Service:   1.0775
Current Ratio > 2?         0.4915          Working Capital >= 1.5?    1.5463
Leverage Ratio < 20%?      0.0405          Debt/Assets < 1?           1.8620
Quick Ratio > 1?           3.0000          Inventory Turnover > 1?    0.1223
Share Equity Increase:     2.1428          Market Cap.< 1.5 Billion?  0.7634
                                           Intangibles < 3% Assets?   0.0742
Income Tests:
Profit Margin < 7.5%?     -0.1187          EPS Annual Growth > 10%?  -3.0000
Dividend Yield > 2.0%?     3.0000          EPS 3-yr Growth > 15?     -3.0000
Enterprise Value/Revenue   3.0000          EPS Growth Consistent?     0.0000
Enterprise Value/EBITDA:   3.0000          Collection < 45 days?      0.9456
EPS Qrtly Growth > 10%?    0.0000          Gross Pft/Cur. LTD > 1?    3.0000
                                           Borrowing Int. Rate < 6%?  1.9056
Stock Performance Tests:
Volatility > 25%?          1.8900          % Held by Insiders < 5%?   0.7669
Beta > 1.25?               0.1120          % Held by Institut. < 50?  0.9667
50 Da MA > 200 Da MA?      0.3291          % Held by Institut. > 30?  1.7240
52-Wk Change vs. S&P 500:  2.4765          Short Ratio > 5?           3.0000
Price/Book Value < 3?      0.4589          Short % of Float > 20?     0.2720
Return on Assets > 17%?    0.1794          Average Volume > 100,000?  2.0958

Cash Flow Tests:
Oper. C.F. > Lever'd C.F:  3.0000          Positive Free Cash Flow?   3.0000
Positive Oper. Cash Flow?  3.0000          Price to C.F.Ratio < 14?:  3.0000
                                           Cash Flow / Assets > 10%?  3.0000

SHEN   Shenandoah Telecommunications Compa Overall Zenith Index:      1.0399


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Income Statement:

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Cash Flow Statement:






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Average to Current P/E Ratios
              (SHEN)       Shenandoah Telecommunication

                               2012    2013    2014    2015    2016

          Annual Earnings:     0.34    0.62    0.70    0.42   -0.02
Average Price During Year:     6.49    9.24   13.73   18.01   27.90

                P/E Ratio:    19.08   14.90   19.62   42.89  %1395.21

 Average 5-Year P/E Ratio  = 298.34
             Current Price =  40

Previous 5 Quarter Earnings:  -0.14   -0.16    0.00    0.05    0.00

           Current Annualized (Last Four Quarters) Earnings =  .05
                                                           ________
                                 Average PE / Current PE =     0.37
                                                           --------

                                      ...a number above 1.00 is good
                                                1.00 or below is bad


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Channeling Potential

 
The summary below includes a value for `Degree,' which refers on a
scale of 1 to 10 the range of a channel in the period under consi-deration compared to the total range of price movement. It also looks
for the last closing price to be within the channel, otherwise zeroed.
The `Index' is the `Degree' weighted for volatility.  Generally, the
the higher the index, the more suitable is the stock for trading as
a `rolling stock' between channel high and low points.

Results for SHENANDOAH TELECOMMUNICATIONS CO.:
Symbol? SHEN
Total Months Available:  46
       Months in Cycle?   4

Months Covered by Periods:  12

Period 1           Period 2          Period 3
   H1      L1        H2      L2        H3      L3
  31.10   22.05     33.05   25.50     41.80   28.00

RANGE   =  41.80  TO   22.05            Close =  39.75
CHANNEL =  31.10  TO   28.00           Degree =   2
Volatility =   7.80%                    Index =   1
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0 out of 8 favorable, (negative opinion.)

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Recommendation

Decision Weighting Factors
FactorsWeighted Points
News + 1
Comparison + 1
Industry
Bond Issue 0
Zenith Index - 1
Non-GAAP vs. GAAP Earnings + 1
Cash Flow + 1
Average to Current P/E - 1
Ratios - 1
Market Grader - 1
Intrinsic Value DCF - 1
Tangible Book Value - 1
Projected Earnings + 1
Research Reports - 1
Analysts - 1
Executive Perquisites + 1
Insider Activity - 1
Institutional Activity + 1
Management Reporting + 1
Short Interest + 1
Sentiment + 1
Standard & Poor's - 1
Moving Average - 1
Right Time Study - 1
MACD Histogram Divergence - 1
Val Idea - 1
Stock Consultant + 1
Point & Figure + 1
Wall Street Analyzer + 1
Marketspace Chart + 1
Time Series Chart + 1
Neural Network + 1
Stock Options - 1
Ultimate Trading Systems - 1
Total - 1
Place 800 shares of Shenandoah Telecommunications Co. (SHEN) on the Active List.