NEW YORK (TheStreet) -- Shares of NeuStar (NSR) were falling 16.1% to $21.08 on heavy trading volume Wednesday following a report that the communication services company may lose a telephone-numbers management contract in the U.S.
The company may lose the contract due to a recommendation by the Federal Communications Commission, according to Bloomberg. The Wireline Competition Bureau recommended that the FCC vote to award the telephone-numbers management contract to Ericsson's (ERIC) Telcordia unit.
Exclusive Report: Jim Cramer's Best Stocks for 2015
The five-year contract has the company managing more than 500 million phone numbers in the U.S., and involves helping consumers keep their phone number when they switch between mobile carriers.
NeuStar held the contract since 1997, and its current contract is set to expire on June 30. The company earned more than $3 billion from the contract over that time, according to Bloomberg.
In FCC filings, Telcordia said that competition for the contract may bring lower charges to mobile carriers which currently pay fees for porting number, which they can pass to consumers. NeuStar said that if it loses the contract the time to transfer numbers between carriers can increase to days from hours, an assertion that Telcordia rejected.
About 6.4 million shares of NeuStar were traded by 2:57 p.m. Wednesday, above an average trading volume of about 807,000 shares a day.
TheStreet Ratings team rates NEUSTAR INC as a Hold with a ratings score of C. TheStreet Ratings Team has this to say about their recommendation:
"We rate NEUSTAR INC (NSR) a HOLD. The primary factors that have impacted our rating are mixed -- some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its revenue growth, attractive valuation levels and growth in earnings per share. However, as a counter to these strengths, we also find weaknesses including a generally disappointing performance in the stock itself, generally higher debt management risk and disappointing return on equity."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- The revenue growth came in higher than the industry average of 19.9%. Since the same quarter one year prior, revenues slightly increased by 6.2%. Growth in the company's revenue appears to have helped boost the earnings per share.
- NEUSTAR INC has improved earnings per share by 39.0% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. This trend suggests that the performance of the business is improving. During the past fiscal year, NEUSTAR INC increased its bottom line by earning $2.77 versus $2.47 in the prior year. This year, the market expects an improvement in earnings ($4.35 versus $2.77).
- The gross profit margin for NEUSTAR INC is currently very high, coming in at 74.30%. It has increased from the same quarter the previous year. Regardless of the strong results of the gross profit margin, the net profit margin of 18.61% trails the industry average.
- The debt-to-equity ratio of 1.28 is relatively high when compared with the industry average, suggesting a need for better debt level management. Regardless of the company's weak debt-to-equity ratio, NSR has managed to keep a strong quick ratio of 2.42, which demonstrates the ability to cover short-term cash needs.
- The company's current return on equity has slightly decreased from the same quarter one year prior. This implies a minor weakness in the organization. In comparison to other companies in the IT Services industry and the overall market on the basis of return on equity, NEUSTAR INC has underperformed in comparison with the industry average, but has greatly exceeded that of the S&P 500.
- You can view the full analysis from the report here: NSR Ratings Report