Syniverse Technologies (SVR) debuted in early 2005 pricing its stock at $16.00 per share.  It is somewhat ironic that just a bit over 3 years later, the stock is still pinned to the $16.00 level especially when considering that the company has grown earnings by triple digit percentage points since it went public.  Granted, the price was definitely optimistic back in 2005 when the market was in the midst of a strong bull run, but despite the economy’s hiccups as of late, the firm continues to soldier on growing revenues at a modest but predictable clip and converting those revenues into legitimate profits for shareholders.  Most recently, the company completed its first quarter with over $100 million in revenue eclipsing its seasonally strong third quarter that had previously broken records.

The company is a technology provider to many of the worlds largest communication providers.  With customers such as Sprint (S), AT&T (T), and Vodafone (VOD), Syniverse is comfortable traveling in the right circles and attracting revenue from very prestigious blue chip names.  It has recently won new contracts from the likes of VipelCom (VIP) which operates in the greater Russia market as well as Peoplenet which is one of the primary providers in the Ukraine.   In the fourth quarter the firm acquired BSG Wireless which allows Syniverse to be a more active participant in the financial settlement side of the business and also gives the company a broader geographical reach.

The acquisition left Syniverse with a large debt load of roughly $562 million at the end of the quarter.  While the company took on $290 million to make the acquisition, it was able to pay off $57 million during the quarter and should be able to knock a good bit of the debt out using operating cash flow over the next few quarters.  Still, the debt level creates some risk if business were to slow over the coming quarters.

Speaking of risk, the primary reason SVR appears to be trading at such a low level is due to its current negotiation activity with Verizon (VZ).  While management has been assuring investors for months now that it expects to complete the contract extension soon, there has yet to be any firm announcement that this issue has been resolved.  The stock appears to be pricing in a significant chance that business with Verizon will be discontinued or at least cut back substantially.  While this may be a legitimate fear, if it is already priced into the stock price, it would appear that any positive newsflow would drive the stock higher and may kick off a sustained multiple expansion due to increased visibility.  Management appears to be capable of negotiating well as they very recently were able to cement a renewed contract with Sprint.  The practice should come in handy next year as well when contracts from AT&T and T-Mobile should be up for renewal.

Despite concerns over Verizon, the company appears to be winning business left and right.  New overseas contracts have the company increasing their international portion of revenue to the point where it is now more than 20% of the total.  The expectation is that this ratio should continue to grow as opportunities about to serve less developed networks operating overseas.  The company is broadening the offering of products to the international market as networks become more sophisticated and services become more diverse.  The integration of BSG (which by the way is tracking ahead of schedule) should help in rounding out the complete suite of products available to international customers.

Keeping a close eye on SVR could prove to be very profitable in the coming quarters.  As the market hits new lows and this stock continues to tread water, relative strength is building and should show up on many institutional traders’ radar.  The resulting push once the market stabilizes could very well propel this name to significant gains.  I will be watching the $18-19 price level very carefully to see if institutional buyers step in as the stock approaches these levels.  If so I will likely begin building a position for longer-term profits.

SVR Notes

FD: Author does not have a position in SVR

Additional Reading:

Curious Rumors about possible Sprint Takeover

Vodafone Counting on Expansion into India