Billionaire John Paulson Says ‘No’ To MetroPCS Communications Inc (PCS) Deal, Should You?

So how does MetroPCS stack up from a valuation perspective? It’s nearly the cheapest on a number of metrics:

Price to Cash Flow

• 3.4x
• 7.7x
• 4.5x
• 8x
• 12.6x

Price to Sales

• 0.7x
• 1.1x
• 0.7x
• 1.6x
• 0.6x

To boot, MetroPCS is also one of the best telecoms with regards to profitability:

EBITDA Margin

• 29%
• 26%
• 18%
• 24%
• n/a

The real future value of MetroPCS remains in its growth.

5-Year Expected EPS Growth (Wall Street estimates)

• 16%
• 7%
• 6%
• 6%
• 17%

Don’t be fooled

Paulson believes that the deal would saddle the new company with too much debt, and that MetroPCS is worth more as a stand-alone company. I believe this appears to be true. MetroPCS has managed to show 20% annual subscriber growth for the last five years and continues to be one of the lowest cost wireless providers. What’s more is that the company expects a five-year compounded annual growth rate for free cash flow in the range of 15% to 20%. MetroPCS has many growth prospects as a standalone company, and a buyout could still produce a premium from current trading levels (see all hedge funds owning MetroPCS).

The article Billionaire John Paulson Says ‘No’ To MetroPCS Deal, Should You? originally appeared on Fool.com and is written by Marshall Hargrave.

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