Morgan Stanley Reports Neutral Tandem's Strong Return Of Capital Profile Still Subject To Significant Pricing Drag

In a report published by Morgan Stanley, Neutral Tandem's TNDM strong return of capital profile is still subject to significant pricing drag.

Morgan Stanley said that it continues to see rapidly decelerating top-line growth in the core voice business (+4.7% Y/Y in 2011 versus +8.8% in 2010), with guidance suggesting significant average revenue per minute (ARPM) compression related to sustained competitive pressures. “Nevertheless, there remains ample room for incremental repurchase activity (in addition to the current authorization at 11% of market cap) as capital efficiency improvement should largely offset margin pressure, positively impacting return on invested capital. However, with elevated risks for earnings pressure in 2011, we believe the stock is fairly valued at 12.2x 2011E EPS and 11.6x 2012E EPS (net of cash).”

Neutral Tandem closed yesterday at $14.08.