News that Time Warner Cable, would join partners Comcast and Sprint in selling services which rely on Clearwire’s US WiMAX network, have led to a number of re-ratings for Clearwire by US analysts.
This created an initial upswing in the Clearwire stock last week, however it has fallen in the past few days, after it was made public that Clearwire was one of the companies targeted in alleged insider trading activity by the Galleon Group. Galleon executives as well as members of Intel Capital have been arrested and the Department of Justice has detailed the transaction, which Intel Capital knew about, when Intel invested $1 billion in Clearwire, triggering further investments from Comcast and Google. It is thought Intel Capital leaked the details to Galleon, enabling it to buy stock and make a quick turn of about $579,000. Other deals of this type amounted to illegal gains of around $20 million including advance knowledge of Google’s revenue falls.
There is no reason to thing that anyone at Clearwire is implicated in the investigation, and once it blows over the good news of Time Warner Cable coming on board should see the stock recover and climb higher. Time Warner has just said that it will start selling WiMAX in the Charlotte area on Dec. 1
Clearwire’s rating was raised by Phil Cusick of Macquarie from ‘outperform’ to ‘neutral’, and at the time this was enough to boost confidence in the firm’s underlying performance. Cusick raised his price target from $7 to $12 (the stock closed on Friday at $8.21).
“Our confidence is higher primarily due to Clearwire’s shift in the past six months to an experienced wireless team and operational focus, its building momentum, a high likelihood that it will be able to raise additional capital and an attractive valuation and asset base,” Cusick said in a research note, hinting at the impact that the new CEO, former Vodafone senior executive Bill Morrow, is starting to have.
The note concluded that Clearwire still needs $2.5 billion to $3 billion more cash to hit its target of covering 120 million pops, and Cusick thinks that with this injection of capital, it is likely to reach 225 million pops by 2016. Cusick says that, according to Clearwire management, the company needs to see where that additional funding is coming from in the first quarter or else it will have to pull back in its build-out schedule. He said that Sprint may be willing to fund more than 51% of the new funds, with the rest to be made up, presumably, by others among the investor line-up (Comcast, Time Warner Cable, Brighthouse Networks, Intel and Google).